Focus on Asia: Investing in the future

Focus on Asia: Investing in the future

  • Ben Blaschke — Managing Editor, IAG
December 28, 2021 3:00 PM
  • Ben Blaschke — Managing Editor, IAG

I recently began buying up shares in a small handful of casino and integrated resort companies across Asia-Pacific. Nothing to get too excited about, mind you – I won’t be retiring in the Bahamas anytime soon – but if there is one thing I’ve learned in my years doing this job it’s that nothing in our industry is ever as good or bad as it seems.

Right now, as we welcome in the New Year, operators from Macau to Korea to Australia have been beaten down by a confluence of headwinds, and it’s understandable that investors might be concerned.

Two full years since the COVID-19 pandemic first devastated the global hospitality industry, the arrival of the Omicron variant has thrown another curve ball just as governments plot to reopen their international borders.

Jurisdictions that rely heavily on cross-border tourism – from the foreigner-only casinos of South Korea to the once unstoppable gaming hub of Macau – continue to feel the pressure from major declines in visitation.

Likewise, China’s crackdown on cross-border gambling has cast doubt on the ability of overseas operators to attract Chinese tourists to their properties even when borders do reopen, suggesting the time is nigh for a rethink when it comes to international marketing strategies.

Certainly the VIP sector is set for an overhaul in 2022 after Asia’s biggest junket promotor, Suncity Group, shut down all junket operations in December following the arrest of its CEO, Alvin Chau. Whether or not this spells the death of the junket industry remains to be seen, but there is no doubt the landscape will look very different going forward.

In Australia, which is currently in the midst of its own regulatory overhaul that began, ironically, due to the relationships Suncity had long held with Crown Resorts and Star Entertainment Group, questions have been asked around how operators will recalibrate for the future absence of Chinese VIPs. The same question is being posed in jurisdictions all across the region, prompting some media organizations to cast doubt on the industry’s future. One even dared to suggest that this was the end of Macau’s standing as the casino capital of Asia.

Such a notion is absurd.

As we roll into 2022 and look ahead to the Year of the Tiger, I have no doubt the Asia-Pacific gaming industry will roar again. In Macau, the arrival on Christmas Eve of 40,000 visitors – the city’s third highest tally of 2021 – suggests demand is as strong as ever, with numbers restrained only by the COVID-19 border restrictions that remain in place rather than any reluctance to travel on the part of Chinese citizens. As the United States has shown in recent months, pent-up demand is a very real thing, and I fully expect Macau to respond in kind once China fully opens its borders.

The recovery trajectory looks even stronger for the likes of Australia and the Philippines, who have strong and reliable domestic markets to fall back on.

Singapore’s integrated resorts remained surprisingly resilient during COVID-19, with Resorts World Sentosa even turning a decent profit despite the closure of international borders. With those borders now opening up and the impact of China’s junket crackdown likely to be less severe on Singapore’s operators – junket regulations are so strict as to make licensing near impossible – 2022 promises to show considerable improvement on the challenges of the past two years.

Cambodia’s NagaWorld may face greater challenges than others, with Morgan Stanley recently estimating that 45% of its 2019 EBITDA came from the VIP segment, of which 25% was from Chinese VIPs. Yet, like RWS, NagaWorld was profitable when open during COVID thanks to Phnom Penh’s large expat community and can expect to benefit from its close relationship with China in the years ahead.

So, while institutional investors remain cautious on the sector, could it be that now is in fact the best time in years to get onboard? Only time will tell, but it feels like a good bet to me.