NagaCity Walk – a shopping complex linked to the NagaWorld casino resort (pictured) in Phnom Penh, the capital of Cambodia – is likely to be “operational at some point in the second half of 2016,” said a note on Wednesday from brokerage Union Gaming Securities Asia Ltd, following a site visit.
Brokerage Daiwa Securities Group Inc had mentioned in an April note – after discussions with the resort’s operator, Hong Kong-listed NagaCorp Ltd – that NagaCity Walk was “expected to commence operations in August 2016”.
Union Gaming’s Wednesday note said: “More importantly, there has been significant vertical progress of Naga2, which we believe is only a few weeks away from topping out. Based on the current pace, we would look for the property to be turned over to the company by early 2017 for interior fit-out.”
Naga2 – which will be connected to NagaWorld by NagaCity Walk – will include more than 1,000 new hotel rooms and luxury suites, up to 300 gaming tables and 500 electronic gaming machines, according to filings made by NagaCorp to the Hong Kong Stock Exchange.
At a time when bet volume and casino gross gaming revenue (GGR) has been in retreat in Macau – GGR fell 13 percent year-on-year in Macau in the first quarter this year – volumes have been improving at NagaWorld, noted Union Gaming.
Investment bank Morgan Stanley said in a report on Wednesday that globally, casino VIP business stopped declining in the first quarter, after eight quarters of negative sequential growth.
While still forecasting such business would show a negative number in growth terms for the whole of 2016, Morgan Stanley expected VIP business growth outside Macau would outpace that seen within that city. It added that Cambodia should post the highest VIP revenue growth rate worldwide for full-year 2016, at 39 percent.
Union Gaming stated in its Wednesday note on NagaCorp: “First quarter metrics included volume (not GGR) trends of: VIP rolling chip volume +65 percent; mass table drop +15 percent; slot/electronic gaming machine bills-in +32 percent. This resulted in total GGR +35 percent year-on-year.”
The brokerage’s analyst Grant Govertsen added: “We are adjusting our 2016 estimates slightly downward to reflect bad [house] luck in first half 2016, although we believe there is more upside risk than downside from here…”
The brokerage lowered its estimate on NagaCorp’s 2016 earnings before interest, taxation, depreciation and amortisation, to US$242 million, from US$249 million.
Union Gaming added: “Our model currently contemplates a January 1, 2018 opening for Naga2, but we think there is at least some possibility it could open in the second half of 2017 based on the current pace.”
Daiwa had mentioned the possibility of a mid-2017 opening for Naga2.
Union Gaming also gave some commentary on likely future tax rates applicable to NagaWorld’s operations and to the impact of a long-discussed gaming law to regulate the Cambodian casino industry.
Such a law – that an official said in February might be passed this year – is part of a strategy by the Southeast Asia country to attract more gaming investment and more tourists, especially visitors from China.
“There doesn’t seem to be any hard timeline with respect to the gaming bill that is expected to come out of the Cambodian legislature. We believe the bill will ultimately serve two purposes: to establish a proper gaming regulatory environment; and to establish a GGR tax,” wrote Mr Govertsen.
“With respect to a GGR tax it is possible there won’t be any movement this year, although we believe the ultimate tax rate is likely to be lower than 5 percent, which will be critical to allow Naga to remain competitive regionally,” added Union Gaming.
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"The [Macau] government has a lead in this subject in regards to what should be done after the [gaming] concessions expire. We will be first listening to what the government will say”
Ambrose So Shu Fai
Vice-chairman and chief executive at Macau casino operator SJM Holdings