On the back of a quest for high-rolling Chinese clients, NagaWorld’s gross gaming revenue soared 17 per cent in 2014, although profits were slightly down due to rising costs and lower profit margins from VIP customers.
Gross gaming revenue clocked in at $381.4 million for 2014, while net profit decreased 3 per cent to $136 million. The Hong Kong-listed NagaCorp said, however, that excluding a $15 million fee paid to an electronic gaming operator in 2013, NagaWorld’s net profits were up 9 per cent.
NagaCorp said its ability to achieve higher growth rates than Asian gambling heavyweight Macau, which has suffered from China’s corruption crackdown, was due to the “relatively high proportion of revenue derived from the mass market, and the fact that most [NagaWorld] VIP revenue is derived from Southeast Asia”.
NagaCorp said it is benefiting from high-rolling customers shying away from Macau, where VIP revenue tumbled 10.9 per cent in 2014, according to data from Macau’s Gaming Inspection and Coordination Bureau.
“The downturn in Macau offers the group further opportunities to further penetrate the Chinese gaming market in both the VIP and mass gaming segments, by being able to offer attractive commercial terms to junket operators and agents as a result of NagaWorld’s low cost structure,” NagaCorp’s statement said.
The VIP market made up 47 per cent of NagaWorld’s revenues in 2014, up from 39 per cent the year before, while VIP revenue rose 41 per cent year-on-year to $188.2 million.
But while VIPs are big spenders, their profit margins are relatively low, and declined from 40 per cent to 37 per cent in 2014. That’s largely due to commissions NagaWorld pays third-party junket operators, who bring in visitors from places like China, NagaCorp said. Profit margins for mass market gamblers, on the other hand, reached 96 per cent last year.
Gaming analyst Michael Ting of CIMB Securities in Hong Kong said that regional competition, from the Philippines and elsewhere, for high-rolling Chinese clients was pushing down profit margins.
“In order to bring in players from China, they have to incentivise junkets,” he said. “It’s hard for me to agree that their margins are going to stabilise – that’s just our view – due to regional competition.”
Because gambling and casino advertising is illegal in China, Ting noted, casino operators rely on junkets to bring in a “rolodex of people they know”.
Ben Lee, managing partner of GamiX Management & Consulting in Macau, said that gaming in Asia relies heavily on VIP customers.
“Unlike the USA, which is one homogenous market, Asia is a hodgepodge of different legal jurisdictions with all sorts of obstacles to the marketing and facilitation of gaming activities,” he said. “The VIP segment has a greater ability to overcome these roadblocks and as a result, that segment is in fact, in a perverse way, our grind business.”
While VIP gamers’ lower margins and higher operating costs contributed to a decline in net profit margins from 40.7 per cent in 2013 to 33.7 per cent in 2014, NagaWorld remains bullish on its future growth, saying it would sign on more Macau-based junkets.
It already launched its own charter airline, Bassaka Air, last year, in order to ferry in VIPs from China and Macau, although it has only flown domestically so far.
“The group is of the opinion that these promotional and operational strategies will bear fruit in the coming years as NagaWorld grows its market share in Asia,” the company said.
NagaCorp is also targeting 2017 for the completion of its new casino in the Russian port city of Vladivostok, and added that the NagaCity Walk addition, which is to open early next year, would “enhance the retail experience” for all customers.
