The Philippines gaming market is likely to see the fastest market expansion among Asian jurisdictions, benefiting from a growing ability to penetrate the Chinese VIPs market and to attract a local gambling clientele, J.P. Morgan Securities (Asia Pacific) Ltd said in a report.
Some of it is due to a rising tide of Asian casino gaming carrying all boats, researchers indicated.
“We forecast Asian GGR [gross gaming revenue] to grow circa 50 percent to US$85 billion by 2018, from US$59 billion this year,” analysts led by DS Kim said on Wednesday.
The J.P. Morgan team said the pace of new property openings “will sharply accelerate, which in our view will work as a key impetus to stimulate gaming demand in the region”.
“We expect a total 14 major properties to open in Asia by 2018, which would be 4x [times] more than the three new openings we saw since 2011,” the report said.
The report covers casino operators in Macau, South Korea, the Philippines, Singapore and Malaysia. Casino operators are gearing up to launch new properties in the Philippines, Macau and South Korea between 2015 and 2018.
The increasing supply of quality properties, underpinned by favourable economic, demographic and infrastructure developments in the region, “should remain the key driver behind the secular growth in gaming penetration for many years to come”, the J.P. Morgan analysts stated.
Three simple drivers could make this happen according to the report: gaming is severely underpenetrated in Asia, compared to other markets like the U.S. or Australia; growing affluence in the region which equals to rising share of wallet for gaming; and new supply of quality casinos helped by ongoing improvements in infrastructure.
Among the five jurisdictions covered in the report, the analysts “expect Philippines to see the fastest demand growth at +15 percent CAGR [compound annual growth rate] in 2014-18, followed by the South Korean foreigner-only market (+14 percent CAGR, but heavily back-end loaded in 2017/18)”.
“Macau ranks third (+10 percent CAGR) despite its best long-term outlook, mainly due to likely subdued growth next year.”
The brokerage forecast “+6 percent, 4 percent, and +3 percent 2014-18 GGR CAGR for Malaysia, Korea (domestic market), and Singapore, [respectively]”.
“We believe these markets are unlikely to see meaningful incremental demand from overseas gamblers due to location (Malaysia) and regulatory issues (Korea and Singapore), while there is little upside from local gaming demand in our view,” the analysts wrote.
The brokerage expects the opening of the City of Dreams Manila later this year to be “a game changer to the industry” in the country. The property is being developed by Melco Crown (Philippines) Resorts Corp and backed by the richest man in the Philippines, Henry Sy.
“Locally, its diverse non-gaming offering with well-branded hotels (Hyatt, Crown, Nobu) as well as clustering effect with Solaire would finally help Entertainment City to build the critical mass,” they said.
The first property in Entertainment City, Solaire Resort and Casino (pictured), opened last year and is owned by Bloomberry Resorts Corp. Other licence holders include Alliance Global Group Inc and Genting Hong Kong Ltd, a joint venture that also manages the already-operational Resorts World Manila near the capital’s airport; and Universal Entertainment Corp, controlled by Japanese billionaire Kazuo Okada.
Melco Crown Philippines is a unit of Melco Crown Entertainment Ltd and could benefit from the parent’s operation in Macau, said the report.
“Melco group’s long-standing relationship with Macau junkets should open the door for them to participate in the market, which, underpinned by higher commissions and rebates, should help operators tap into the Chinese VIPs,” the brokerage said on Wednesday.
“We expect Philippines gaming revenues can double to US$4.5 billion by 2018 from US$2.2 billion in 2013,” the J.P. Morgan team said.
The analysts however note that Chinese VIPs are not running away from Macau. “Our extensive checks with operators … reveal that such a trend is not happening, at least not in any meaningful scale,” they wrote.
Triggered by four consecutive months of decline in gaming revenue since June, prices of casino gaming stocks in Hong Kong have dropped by 37 percent on average from their respective year-to-date peaks, according to the brokerage.
The downturn however “is not structural”, said J.P. Morgan.
It added: “Taking a step back, we note consensus earnings estimates for six operators came down by US$1.2 billion from the peak (down 11 percent), during which time the sector lost US$70 billion in market cap (down 37 percent). In other words, we believe it was more the uncertainty and fears on the outlook, rather than the magnitude of slowdown itself, which caused a correction.”
The brokerage sees a recovery in Macau’s gaming industry starting in the second quarter of 2015. “Macau … will likely enjoy the best ‘profitable’ growth from secularly rising Chinese mass, and we forecast the combined EBITDA [earnings before interest, taxation, depreciation and amortisation] of [the] six operators to double by 2018,” the report said.
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”Assuming that our [Tigre de Cristal] phase two project and the other future operators’ development plans remain on track, we may see the benefits of a ‘cluster’ effect [in the Primorye Integrated Entertainment Zone] as early as 2021”
Summit Ascent, lead developer of Tigre de Cristal