From four VIP rooms in Macau to one
One of Macau’s best-known VIP junket operators has opted out of the gaming business to buy a piece of a Chinese technology firm.
Relinquished hopes that the region’s VIP segment will recover, Iao Kun Holding Company has announced that it will acquire a 51 percent stake in the holding company that owns Guangzhou LiNiu Network Technology Co. According to CDC Gaming Reports, the software company is developing an electronic trading platform to serve China’s agriculture industry.
Iao Kun’s surprising change in direction follows a cataclysmic year for the company. In 2016, it posted major losses in quarterly revenue and rolling chip turnover and closed four of five VIP gaming rooms in Macau.
“Over the last few months, we have conducted an extensive review of our operations and our business strategy in order to right-size IKGH and find a path where we believe we can create long-term value for our shareholders,” said Chairman Lam Man Pou.
“We concluded that we did not see a path forward toward rebuilding our VIP gaming portfolio,” he said. “While we will continue to participate in the promotion of our VIP gaming room in Macau, we have no further plans to expand our gaming operations to additional VIP rooms.”
Like other junket operators in the region, Iao Kun struggled through a two-year recession in Macau, which hit the VIP segment particularly hard. Last summer the company acquired a casino property and gaming license in Korea, but shares failed to maintain a minimum bid price of $1.
“We identified several opportunities to diversify from the gaming sector which we believed were attractive from a value-add standpoint,” said Lam. “After appropriate due diligence, we made the determination to acquire a majority interest in LiNiu Network and will be focusing our near- to mid-term efforts on successfully launching its trading platform and rapidly scaling the business.”
Lam said the acquisition will require no upfront cash payment and “firmly aligns our interests with that of LiNiu Network as the vast majority of their consideration is dependent upon them achieving consistently increasing after-tax profit targets over the next five years.”
The network is developing an electronic trading platform designed to boost business and investment for China’s agriculture sector. It is expected to launch in the first half of 2017.
“We are excited to be partnering with IKGH and playing a key role in their transition into the technology industry,” said Wang Shun Yang, director of LiNiu Network. “We see a need to create a more efficient way for individual farmers and Chinese agricultural suppliers to conduct business with their customers, and we believe the LiNiu Network platform is uniquely positioned to fill the current gap.”
VIP revenues have risen in Macau, but analysts differ on whether the recovery in Macau will depend on high roller revenue or mass-market, reported the Macau Daily Times.
“We’ve consistently noted over the past two months that Wynn is highly leveraged to VIP and that the VIP segment has been accelerating and driving Macau market growth,” said Cameron McKnight of Well Fargo Securities.
Buckingham Research Group analyst Christopher Jones agreed, saying Wynn’s Cotai venture has brought the operator’s market share in Macau to 13.7 percent, the highest since 2012. But Union Gaming analyst Grant Govertsen said Wynn’s results are inconclusive.
“It cannot be stressed enough that the headline growth rates in 4Q16, which showed VIP growing significantly faster than mass tables are, simply put, backwards,” he wrote, adding that some casino operators classify some mass-market tables as VIP to get around the city’s smoking ban.
“In other words, the strength seen in the fourth quarter of 2016 was not primarily driven by VIP. It was driven by mass,” added Govertsen. “This is very important in the context of what we see as a sustainable mass market-led recovery.”
