Casino operators in South Korea have seen their revenues decline,
as Chinese authorities continue to crack down on VIPs trying to
circumvent restrictions on the flow of money out of China. The summertime
outbreak of Middle East Respiratory Syndrome (MERS) in
South Korea exacerbated the industry’s decline: the number of
visitors from China to South Korea dropped 63% during the height
of the outbreak. However, Kangwon Land (KWL.KR; 035250:KS),
unlike other casino operators, was able to increase revenues and
net income by 5% and 13%, respectively, during the tumultuous Q3
2015 period, largely because of its exclusive casino license to offer
gambling to locals. With this local market monopoly, it relies less
on foreign visitors and benefits more from a rebound in the South
Korean economy.
Tag: Asian Casinos
The Star in Australia AttractsDisplaced VIP Gamblers
Casino operators throughout Asia have seen revenues decline, as VIP gamblers limit their exposure under the intense scrutiny of Chinese authorities. Australia-based Echo Entertainment (EGP.AU; EGP:AU) is one of the few casino operators benefiting from this crackdown, with its properties proving strong alternative destinations for Chinese VIP gamblers and tourists, as well as Macau junket operators pressed to expand internationally. We believe the future is promising for Echo, as it plans to take its properties to new heights, highlighted by a multi-billion dollar renovation project of the Queen’s Wharf in Brisbane. We rate its shares Market Perform under our Asian Casinos theme.
The Rising Bloom in Asia
By the end of the decade, the Philippines may overtake Singapore as the world’s number two in total casino gambling revenues. It has several advantages in play: its proximity to China and other Southeast Asian countries, a growing middle-class, but perhaps most compelling is that locals are allowed to gamble in its casinos, unlike most other Asian countries. While foreigners are still expected to account for a large percentage of future growth, not having to rely on them exclusively is a significant plus. The focus of gambling in the Philippines is Entertainment City, a project currently being developed that will ultimately include four integrated resorts. Bloomberry Resorts (BLR.PH; BLOOM:PM) opened the first of these
four, Solaire Casino and Resort, the country’s first resort able to compete in size and luxury with those found in Macau or Las Vegas. Its management is aggressively signing junket operators who are looking to diversify beyond (a slowing) Macau, and its financials are improving dramatically on this strategy. Bloomberry is also expanding to South Korea to capture growth in Chinese tourism. We like these strong moves and are initating coverage of Bloomberry Resorts with an Outperform rating under our Asian Casinos theme.
Paradise Not Far from China
The development of Macau into a gambling mecca is well known
but another potentially huge gambling market lies just off the
northeastern coast of China—South Korea. It is the fourth-largest
economy in Asia, and the government is easing investment restrictions
for its casino industry to better compete in the region (see
our recent theme report on Asian Casinos). A direct beneficiary is
Paradise Co (PCL.KR; 034230:KS), South Korea’s largest casino operator.
With Paradise’s integrated resort breaking ground this year
and the increasing flow of Chinese tourists to South Korea, we rate
the shares as an outperform.
Bet On Asian Casino Operators
Casino operators in Macau have posted some of the most impressive
stock gains over the past few years. With China’s growing
middle-class and improving infrastructure, the best growth may be
yet to come—not only for Macau but for other casino operators in
the region. South Korea, the Philippines, and other Asian countries
are racing to build their own integrated resorts to compete with
Macau, hoping to see similar inflows of tax revenues, tourism, and
foreign investment. Japan, too, may soon open its borders to casinos,
potentially creating the second-largest gambling market in
the world.
With so many players and so much potential, who will lead the
pack? Is demand sufficient to fill the tables? This theme report from
O’Neil Equity Research describes Asia’s gaming development
hotspots and highlights equity ideas we’re watching in the space.
Calls on individual equities will be made—as they develop—in subsequent
reports by our analysts.
