Economic growth in Asia will not be enough to fuel the estimated US$65 billion in new casino development across the region, warns Union Gaming analysts.
According to the brokerage, two-thirds of new developments are being developed for existing jurisdictions, with the remaining one-third in a solitary greenfield jurisdiction (Japan), with most of this expected to come online within the next five or six years.
However, Union Gaming analyst Grant Govertsen believes that the economic growth in these regions will not be enough to justify the amount of new supply.
“Given the scale of the pipeline relative to the EBITDA required to justify it, we think—for the first time in Asia—the amount of new supply is simply too much over too short a period of time,” wrote Govertsen.
According to Union Gaming’s calculations, Asian GDP (excluding Japan) would need to grow at nearly 11% per year through to 2025 in order for the numbers to work, but the brokerage believes a 6.5% compound annual growth rate would be more realistic, “if not somewhat ambitious.”
With an oversupply, operators with quality management and the physical plant will be key to success, said Union Gaming. This could be bad news for those that have fallen reliant on China’s growth.
“For too long Asia has been an unbelievably forgiving place to be a casino operator, thanks primarily to China’s rise… There will be a notable and growing divergence in operator performance in virtually every market in Asia with market share gains captured by the most capable.” (AGB)