Inside Asian Gaming

INSIDE ASIAN GAMING | Oct 2007 26 D eutsche Bank has attempted to analyze and compare the projected profitability of ca- sino resorts in Macau, Singapore and Malaysia, taking into account that each market has a different gaming tax structure, operating cost and junket commissions/rebates. Singapore’s profitability, at this stage, is purely based on our estimates since there are no precedents of land-based casinos. According to our analysis, Malaysia has the most lucrative gaming margin. Despite paying a higher gaming tax rate than Singapore, its margin exceeds 50% partly helped by a low operating cost structure and a higher proportion (70%) of highly profitable mass market gaming revenue mix. Singapore offers the next highest gaming margin, due to its low gaming tax structure of 5-15% (or 12-22% including 7% Goods and Services Tax [GST]) for VIP and mass versus 40% in Macau and 25% in Malaysia,The low gaming tax rate in Singapore, is in our view, designed to help subsidize its less profitable non-gaming operations. On the flip side, due to a high gaming tax rate and VIP heavy gaming revenue split,Macau generates the lowest gaming margin. Mass gaming is much more profitable The figures on page 28 illustrate DB’s estimated profitability for mass and VIP in the three gaming markets under consideration.The VIP rolling chip is a measure of the volume of play by VIPs and the theoretical win is the casino advantage in gambling games. For mass, the amount of play is much less but the hold percentage is higher due to players’ mistakes and/ or ignorance in various games. In general, the mass gaming market is much more profitable than its VIP counterpart due to the industry practice (in Asia and Australia) of offering commissions to junket operators or rebates to VIP players. Commissions to junket operators range from 0.8% to 1.6% of the roll- ing chip while rebates to direct VIP players range from 0.5% to 1.1%. Malaysia currently pays one of the highest commissions (1.5-1.6%) and rebates (0.9-1.1%) among leading casinos in the region. Analyst Extract Profitability Check ‘Asian gaming: Big is better’ , a new report from Deutsche Bank, was presented to an investors’ conference in Macau recently. In this extract, DB analysts Aun-Ling Chia and Karen Tang examine the profit profiles of the three major markets Gaming cost structure comparison Malaysia Macau Singapore Gross gaming revenues 100 100 100 Less Junket commissions/rebates -13 -25 -15 Less gaming tax -25 -40 -19 Less labor cost -8 -10 -12 Less other costs -3 -3 -7 Gross profit 47 Less management & licensing fee -11 0 0 Gross profit after license/mgmt fee 40 22 47 Assumptions:- VIP % 30% 65% 30% Mass % 70% 35% 70% Source: Deutsche Bank; * Malaysia is based on DB’s projection for Resorts World; Singapore is based on DB’s estimates for Resorts World at Sentosa 51 22 Marina Bany Sands