Manila Casinos Bid To Rival Las Vegas
BMI View: The plans of Belle Corp. and Australian-Hong Kong Melco Crown Entertainment to open a US$1bn casino complex highlight the Philippine government's goal of establishing the country as a tourism and gaming hub. A US$5bn development of casinos along a stretch of Manila's coast supports our positive outlook of 6.6% year-on-year real growth for 2012 and reflects the increasing confidence in a country where consumer purchasing power is on the rise and the government has committed to heavy investment in infrastructure projects. Yet, downside risks abound, especially those presented by a Chinese economic slowdown, opposition from the strongly entrenched Roman Catholic Church, and increasing competition from regional neighbours.
Under the agreement, Belle Corp (an affiliate of SM Investments Corp, owned by the richest man in the Philippines, Henry Sy) has formed a consortium with Melco Crown Entertainment ( MCE), a joint venture between Hong Kong's Melco International Development Ltd. and Australian Crown Ltd. The entertainment and leisure giants - led by the sons of Stanley Ho and Kerry Packer - are hoping to finalise agreements pertaining to the 'Belle Casino' integrated resort within the next two months. MPEL Projects, a unit of MCE, have disclosed to the Hong Kong Stock Exchange that they will invest up to US$580mn in the project, using cash, cash flow and debt financing and possibly with the help of US$320mn loan facility.
Belle is looking to MCE for help in developing the build after the JV's success in Macau. One of only six casino operators licensed in Chinese Special Administrative Region (SAR), MCE control a number of landmark attractions including the City Of Dreams complex, the Grand Hyatt and Crown Towers Hotels and the Hard Rock Hotel and Casino.
|Consortium Betting On East Asian Demand|
|Global Gaming Industry Revenues|
Chinese Up The Ante
We believe that, due to the competitive environment of the Asian gaming market, a business-friendly tax regime and relatively low construction costs, the consortium's investment should see decent returns over the medium term, with the sector offering the potential for other firms to diversify and gain the benefits flowing from a long run expansion of the Philippine economy. However, a serious downside risk is offered by the potential for slowdown in the Chinese economy which is becoming observable in Macau's gaming industry construction space.
The Philippine government see the huge 'Belle Casino' development as part of a broader strategy to position Manila, which has long fostered a significant gaming market, as the world's second wealthiest gambling destination - ahead of Singapore and Las Vegas and second only to Macau. Belle has gained one of four licences to build in 'Entertainment City,' a new development on Manila Bay which the Philippine Amusement and Gaming Corp. hope will rival the Las Vegas Strip.
Other licensees for the project are Malyasia's Genting Group, Philippines-based Bloomberry Resorts Corp., and Japanese Universal Entertainment Corp. At around US$2bn, the Japanese firm's investment is slated to be the largest, with Bloomberry's US$1.2bn Solaire Manila casino-hotel expected to open next year. In sum, Entertainment Bay should cost approximately US$5bn - a reasonably small figure in an industry in which builds come with large price-tags: in Singapore, the stand-alone Marina Bay Sands and Resort World Sentosa complexes cost US$6.9bn and US$5.7bn respectively; in Macau, Wynn and Sands China are completing complexes worth US$4bn and US$4.4bn.
PriceWaterhouseCoopers reported in December that, due to increasing incomes across the region, they believe Asia will eclipse the USA as the world's wealthiest gaming market in 2013. Indeed, according to Bloomberg, Macau's gaming revenues in 2011 were five times that of Las Vegas. A ban on gambling in mainland China has long fuelled casino and leisure construction across Macau and Singapore, and we see room for further expansion in the market as demand for facilities will remain buoyant in the medium term.
Currently, Macau and Singapore's gaming markets have outperformed due to a reliance on oligopolistic competitive environments upheld by government barriers to market entry. More importantly, governments have tended to refrain from directly regulating the industries. However, in the long term we forecast a wider spread of gaming revenues, thus an increasing demand for leisure industry construction across a broader array of Asian cities. Aside from Philippine expansion, Taiwan and South Korea are considering lifting gambling bans, and Vietnam continues to develop a number of casinos for foreign tourists - largely mainland Chinese.
A crackdown on corruption and lax regulatory frameworks will aid the development of alternate hubs; earlier this month the proposal a stricter Casino Control Act had a negative effect on Singaporean equities, hitting Genting Singapore's stock amongst others. Around the same time, slowing revenue growth figures from the SAR fuelled rumours that Macau was putting restrictions on mainland Chinese visiting permits - highlighting the enclave's reliance on retaining favour with the central government at a time when China's officials are strongly scrutinising public morals in the build up to a regime transition. Furthermore, junket credit (quasi-legal money lending operations relied upon by many mainland 'whales') appears to be weakening due to Macau's badly-defined legal institutions and a fall in liquidity in the mainland.
|Leisure Industry Supports Construction Boom|
|Philippines, BMI's Construction Industry Forecast|
According to our outlook, Manila holds significant growth potential across the entire construction sector. The country is experiencing rapid development and last year real GDP growth was second only to China for the region. A rising middle class, buoyant tourism sector and a government commitment to infrastructure investment projects underpin our outlook for a return to real growth for 2012 - we believe that the construction industry will grow 6.6% this year and continue along a strong trajectory of around 7.2% annually until 2016.
The positive outlook for the Philippine consumer will be the core driver of demand, whilst improving monetary conditions will likely stimulate a revival in private sector investment. A PHP72.1bn (US$1.7bn) government stimulus package was announced in Q411 as a means of facilitating reconstruction efforts (following the two typhoon landfalls) and of offsetting the effects of a slowing economy. However, we note that growth in the residential construction sector will remain restrained by a lack of mortgage funding availability, despite a boom in Philippine real estate being fuelled by remittances from middle class Philippine workers overseas.