NagaCorp Makes Casino 'Holiday In Cambodia' No Joke

Forbes | 15 June 2014

The US and Vietnam made Cambodia a war zone. The Khmer Rouge turned it into killing fields. The Dead Kennedys’ song “Holiday in Cambodia” mocked it as a vacation destination. NagaCorp has turned it into a goldmine.

NagaCorp operates the largest casino hotel in Cambodia, NagaWorld, and its shares have been among the top performers on the Hong Kong stock market since listing in 2006. Last year, NagaCorp reported net profit of $140 million on revenue of $345 million, both up 24% from 2012. Since 2009, NagaCorp’s net profit has shown a compound annual growth rate (CAGR) of 53% with revenue CAGR of 31%.

Several factors have helped NagaCorp evolve from a floating casino in a branch of the Mekong River into a regional gaming player that, like Vietnam and the Philippines, provides an alternative to Macau for high rollers and turns lower tier players into VIPs. The company holds a 70 year license running through 2065 that includes a 41 year monopoly within a 200 kilometer (120 mile) radius of capital city Phnom Penh. It pays no taxes on income or gaming revenue, just a fixed fee that last year amounted to 1.5% of total revenue. Labor and construction costs are low compared with other Asian gaming destinations. “We built a facility for $200 million that would have cost $1.5 billion in Macau,” NagaWorld chairman Timothy McNally says. 

NagaWorld, Phnom Penh, Cambodia (Photo credit: Wikipedia)

The company has also helped promote Cambodia as a tourist destination. Visitor arrivals have shown 18% CAGR since 2002, reaching 4.2 million last year. Neighboring Vietnam provides 20% of the arrivals, with China, South Korea and Laos in the low double-digits. NagaWorld works with travel agents in China to arrange charter flights for tourists. “We want to keep growing with Cambodia,” McNally told listeners at Global Gaming Expo Asia in Macau last month. The company highlights its commitment to nation building following Cambodia’s wars and genocide in the 1970s and 1980s. NagaCorp CEO and controlling shareholder Chen Lip Keong, a Malaysian who trained as a medical doctor before turning to property development, has long served as an economic advisor to Cambodia’s Prime Minister Hun Sen.

As you’d expect, gaming dominates NagaCorp’s revenue, accounting for $325 million or 94% of last year year’s total  Mass market revenue grew 16% to $192 million, just over half of it from very popular electronic gaming tables and slot machines. Machine betting is nearly two and a half times greater table bets yet produces just 12% more income, suggesting electronic players are getting a much better deal. Overall, the property has 172 tables and 1,543 machines.

VIP revenue rose 40% to $133 million last year and represents about 45% of total gaming revenue. Vietnam and China provide the biggest chunks of the roll, along with Cambodians holding foreign passports (other Cambodians are barred from gaming). Last year, the company stepped up cooperation with Macau junkets to bring more of their players to NagaWorld.

What you may not expect is that NagaWorld is a thoroughly first-class property. Its 700 rooms include 500 five-star accommodations at less than half of Macau prices. Gaming area themes includes a Chinese garden and NagaRock with the feel of a dance club, complete with lights, music and dancers. Every treatment room in the spa has a whirlpool bath (and karaoke). The breakfast buffet may be the best in Southeast Asia, featuring Japanese, Chinese, Korean, Indian and regional flavors, starting with four different soup stations, along with Western standards, the perfect place to try hargow with bacon, uni, kimchee and mango pickle, wrapped in a crepe.

NagaWorld’s gaming revenue for the entire year represents the take from busy weekend in Macau, but that doesn’t bother chairman McNally. “You don’t have to be a big operator if you have vision and smart operations,” the former FBI agent and Hong Kong Jockey Club executive says. Nonetheless, NagaCorp aims for plenty of growth, including ambitious expansion plans in Phnom Penh and beyond.

The company is building an extension to NagaWorld, dubbed Naga2, that will make the property a true integrated resort. Scheduled to open in 2017, Naga2 will include more than 1,000 new hotel rooms and luxury suites, hundreds more gaming tables and machines, and convention facilities including a 4,000 seat theater. Naga2 is about 300 yards from the original resort, across a major boulevard, and the properties will be linked via NagaCityWalk, doubling as a shopping mall. In 2012, five luxury retailers opened at the NagaWorld end of what will become the passage.

NagaCorp has also agreed to develop a $350 million casino hotel in one of Russia’s new special gaming zones outside Vladivostok. The company’s experience in Cambodia, where it had to lead way on regulatory issues such as anti-money laundering initiatives and sell visitors on the idea that Cambodia was no joke for a vacation, will undoubtedly serve it well in another frontier destination.