GGRAsia – Louis XIII to charge up to HKD1 million per night

Louis XIII to charge up to HKD1 million per night

Jun 26, 2015 Newsdesk Latest News, Macau, Top of the deck

Boutique casino hotel Louis XIII plans to charge as much as HKD1 million (US$129,000) per night for its most luxurious accommodation, says a note from Japanese brokerage Nomura after a meeting on Thursday with its management.

Hong Kong-listed Louis XIII Holdings Ltd has said it plans to open the property – described in November 2014 as a US$1.1-billion project (pictured) – on July 1, 2016.

“The company plans to have 16 VIP tables and 50 mass tables. The minimum buy-in would be HKD300,000, while the minimum bet for tables will be set at HKD10,000,” stated a note from Nomura analysts Richard Huang and Stella Xing, following meetings with several small- to mid-cap gaming firms at the brokerage’s ‘HK/China Consumer Corporate Day’.

Nomura added in its commentary on Louis XIII: “The company plans to charge HKD15,000 to HKD1 million per night for their luxurious hotel suites.

The property’s management had said in briefings with other analysts in April that Louis XIII would have 200 hotel rooms described as “the largest in the world” with the core 171 rooms providing a standard duplex layout of 2,000 square feet (186 sq metres). It said there would also be 29 suites where guests would entitled to a gaming table for private in-suite gambling.

Nomura said in its Friday note: “As per management, the VIP segment is not the company’s focus, and it only expects 5 percent EBITDA [earnings before interest, taxation, depreciation and amortisation] contribution from this segment,” referring by the term ‘VIP’ specifically to rolling chip programme players rather than to the wealth or status of the guests.

“Louis XIII plans to use only ‘one single junket’ (the Neptune Group), and believes this could reduce the cannibalisation between junkets,” added Nomura.

The brokerage also met with management from gaming equipment supplier Paradise Entertainment Ltd. Its Live Multi Game terminals – sold under the LT Game brand – are a sub-category of a product segment also referred to by analysts as electronic table games or ‘ETGs’.

“In 2015, management expects to sell 1,000 units of ETGs in Macau and 500 to 700 units in the U.S.,” noted Nomura.

The brokerage also had conversations that day with executives from NagaCorp Ltd, developer and operator of the NagaWorld casino resort in Cambodia’s capital Phnom Penh. According to Nomura, NagaCorp’s management indicated that more than 60 percent of NagaWorld’s customers are Cambodians holding foreign passports and that have returned after fleeing the country during the civil war of the 1970s and 1980s. The remaining 30 percent of NagaWorld’s clients are said to be mainly from Malaysia, Singapore and Vietnam, it added.

“Management is not concerned about mainland China’s anti-corruption campaign. It believes their VIP clients, who gamble much less than the typical Macau VIPs, are just upper-middle class people who are not the target of China’s anti-graft campaign,” stated Nomura.

Galaxy pressured

In other developments, Credit Suisse AG analysts Kenneth Fong and Isis Wong said in a note on Thursday that Macau casino operator Galaxy Entertainment Group Ltd’s earnings could be pressured in the second quarter on higher costs associated with the opening on May 27 of the HKD19.6-billion Galaxy Macau Phase 2 and the HKD500-million Broadway at Galaxy Macau.

“In the second quarter, we believe Galaxy [Entertainment] could see the biggest pressure as the new opening added cost pressure without sufficient incremental revenue. We expect Galaxy to show the weakest sequential earnings in second quarter 2015,” wrote the Credit Suisse analysts.

Wells Fargo Securities LLC said in a note on Tuesday that Galaxy Entertainment’s chairman Lui Che Woo had stated that Galaxy Phase 2’s performance has been “satisfactory, but not as good as what we expected”.

David Bain of brokerage Sterne Agee CRT said in a note on Wednesday: “Our Macau contacts state that Galaxy’s new expansion has several outlets for ‘locals,’ and is therefore helping foot-traffic, but that the property is likely not attracting its desired gaming client base yet.”

Credit Suisse noted in its report that investors were getting fatigued by the stream of bad news from Macau.

“From a trading perspective, we believe that downside for the Macau gaming sector could be limited as the sector is already under-owned and the investors are getting tired of the negatives,” said Mr Fong and Ms Wong. But they also noted: “Based on our discussions with hedge fund clients, they also see little incentive to add fresh shorts [short trades] here as the sector is under-owned…”