(Sept 18): The next few years could be interesting for Australia-listed gaming outfit Donaco International. If its corporate proposals and plans take off, it could see exponential growth, and its bottom line could significantly improve.
Donaco, which has a market capitalisation of more than A$400 million ($431.8 million), is the flagship of Joey Lim Keong Yew — the eldest grandson of the late casino tycoon Lim Goh Tong, the founder of Genting Group.
The managing director controls 31.8% of Donaco and jointly holds an additional 17.4% with his brother, Benjamin Lim Keong Hoe.
“The next three to five years will be very exciting for the company. Over 2013 to 2016, our company’s revenue saw a compound annual growth rate of 109%,” Joey says in an interview. There may be more for shareholders to look forward to.
To put things in perspective, Donaco has two main assets: a casino- cum-hotel called Star Vegas in Poipet, Cambodia; and Aristo International, a hotel with an adjoining casino in Lao Cai, Vietnam.
Donaco, via DNA Star Vegas Co, wholly owns the Poipet business, and has 95% equity interest in the hotel and casino in Lao Cai, with the remaining 5% held by the provincial state government.
Plans for Aristo International
In Lao Cai, Donaco’s prospects seem bright, with the Vietnamese government looking to relax a rule preventing locals from entering casinos. This development, together with the ongoing construction of an airport scheduled to be completed by the end of next year, could boost its Vietnamese business.
Lao Cai airport is scheduled to handle civil and military aircraft, including the Airbus A320 family, and is targeted to have an annual capacity of 560,000 passengers.
Aristo International had an average of 478 patrons a day in the financial year ended June 2017 (FY2017). Back-of-the-envelope calculations indicate that if 500,000 passengers fly to Lao Cai’s new airport, and 10% of them go to Aristo International, the number of patrons will increase by 28%.
Donaco aims to capitalise on a possible spurt in business and is looking at redeveloping part of its land bank in Lao Cai, with an estimated gross development value of US$100 million ($134.4 million) to US$200 million.
Apart from that, future investments by the company on projects in the pipeline could be in the region of US$50 million to US$100 million over the next few years.
“These developments can carry on without affecting or requiring us to shut down the existing operations,” says Joey.
The plan is for a mixed commercial and residential development at the old Lao Cai International Hotel. Aristo International, which is nearby, was developed and opened in 2013.
“The government has allowed us to acquire the whole stretch of property on the promenade, which goes down for three or four blocks, so we will redevelop the whole block facing the river into riverside dining [outlets], commercial properties, a hotel and a shopping mall. The weather is beautiful,” Joey says.
The land forms part of the US$55 million acquisition and development cost of Aristo International.
The five-star hotel offers some 400 rooms and is located on the border with China’s Yunnan province, which has a population of about 46 million. Hotel occupancy averaged 81% in FY2016.
At Aristo International, gaming contributes 55% to revenue, with the rest coming from the non-gaming segment. However, Aristo International only contributes 19% to Donaco’s revenue, with the remainder coming from Star Vegas.
For its FY ended June 2017, Donaco registered earnings of AS$31 million on revenue of A$136.4 million. For FY2016, it posted statutory earnings of A$78.7 million and revenue of A$143.4 million.
“Prior (period in FY2016) net profit included net non-recurring items of positive A$24.1 million, including revaluation of Star Vegas offset by the vendor management fee. Current period (FY2017) includes net nonrecurring items of negative A$23.6 million, including the final vendor management fee,” Donaco says. Joey says the cash flow of the busi ness is strong.
Star Vegas was acquired for US$360 million, US$120 million of which was debt, but this has been pared down to US$57 million in two years. “We aim to settle the remaining debt by 2018,” Joey says.
Donaco is also sitting on a cash pile of A$66 million.
Growing Star Vegas
At Star Vegas, Donaco is adding 90 tables to the existing 140, which should impact the bottom line considerably. Historically, most of Star Vegas’ business — about 90% to 95% — comes from Bangkok.
“We’ve always just focused on the Thai customers. Moving forward, we’ve started looking at trying to attract more international players, so we are setting up a different area for them,” Joey explains.
“This initiative is likely to only set us back by a few hundred thousand US dollars. In essence, this is really low-hanging fruit that should be reaped early.”
Another initiative that could bear fruit in a big way is a plan to introduce online gaming at Star Vegas. By next month, Donaco hopes to partner a major football betting, sports betting or online gaming partner.
Joey, however, declines to elaborate except to say that the initiative will be ready in the coming months.
Star Vegas has about 1,500 electronic gaming machines, half of which may be changed for newer machines. Star Vegas owns about 800 machines and is in talks with suppliers, such as Malaysian electronic gaming machine and equipment maker RGB International.
Companies such as RGB can command as much as 40% of revenue on popular machines, and less for underutilised ones.
Joey says Donaco is also looking at other gaming opportunities and is presently eyeing gaming operations in a major Southeast Asian country, partnering one of the largest operators in the world.
“We’ve already put in our proposal, met with the ministry of finance and the deputy prime minister and been invited to come back. We hope to finalise everything by the end of September,” he adds.
“Other than Asean, North Asia is also very exciting. Certain parts of Europe have opened up and some of the G6 countries (Germany, France, the UK, Italy, Spain and Poland) as well. There are interesting propositions coming from there, but we will always focus on Asia and Asean first and foremost,” he says.
Jose Barrock is senior editor with The Edge Malaysia
‘We have been looking at online gaming very seriously’
As the eldest grandson of the late casino mogul Lim Goh Tong, Joey Lim Keong Yew (pictured) will be closely watched as he runs his Australia-listed gaming outfit Donaco International. In an interview, the managing director shares his thoughts on Donaco and the direction he plans for it. Here are excerpts from the interview:
The Edge: In July, you started the refurbishment of the Star Vegas, and you are adding some 90 tables.
Joey Lim Keong Yew: Yes, that is right. It is essentially a marketing deal with a company called Vivo Tower. The spending will hardly be much. Probably, a couple of hundred thousand US dollars, at the most; it won’t exceed a million.
Will it impact your bottom line considerably?
Absolutely. We have 140 existing tables, so it’s a pure rental model. At the moment, there is a mark, which when crossed, we enter into a revenue-sharing model with Vivo Tower.
There’s talk that Donaco will go into online gaming by October. Is it true?
We have been looking at online gaming very seriously and we are in a unique position — we own a dormant online gaming licence. This is from football betting to online casinos.
We have a licence from the Cambodian government.
Are these games yours?
We are working with a solutions provider who has the platform games, to acquire these games... it is like a game publisher as well.
This is one exciting area of online gaming that we are definitely pursuing first and foremost before we launch online casinos or football betting.
We like to see ourselves as a unique company. We’re not a large integrated resort operator; we are not saying we’re excluding ourselves from that, but definitely, we are looking at a section of the market that is not being served at the moment.
This will start in October?
Maybe not so soon. It will take a bit of time, maybe six to seven months, to develop the platform and integrate it with our CRM (customer relationship management).
This will be broken down into two main categories — sport betting, which is quite prevalent in most countries in Asia, and live streaming.
We are hearing that Vietnamese may be allowed into your casino soon.
We have two locations in Vietnam that have been identified as pilot schemes. Everything is tied to an investment certificate, and you have a project and the land... everything is sort of bundled into a laundry list of things that you need to achieve before you can be awarded a licence. And you comply with what you’d applied to do, for example, [have] a hotel, casino, even a bar. The minimum requirement now for a casino licence is US$2 billion... very chunky. That’s the amount of investment to be made.
But for us, we are a pioneer, so our licence was granted under different circumstances. It used to be the case — you have a five-star hotel, and for every 100 rooms, you get five tables, or something to that effect.
We’re the first in the country. Our licence was granted about 16 or 17 years ago.
So, you are considering this US$2 billion investment, but more of a long-term project?
Are you looking to put more money into Lao Cai?
We are continuously looking to improve. We’re looking to develop a beer garden and [redevelop] the old property (Lao Cai International Hotel). It will become like a commercial area. There is growth in the border towns.
Property development in Vietnam is exciting; there is a lot of room for growth.
We also have land in Aristo International and we have local partners, and the local government is very helpful.
We’re looking at a couple of regeneration projects as well. There’s an old school. We are looking to relocate it and create an education quarter. We are looking at education initiatives as well... setting up a hospitality school with the Lao Cai government.
What sort of property development are you looking at?
We are looking at commercial properties and hotels.
Hotels with casinos?
In Vietnam, they have slot clubs attached to hotels. These are on our radar [screen] as well.
How much are you looking to spend on this initiative?
In terms of gross development value, we are looking at US$100 million ($134.4 million) to US$200 million. In terms of refreshing properties, we are looking at US$50 million to US$100 million over the next few years.
Is there demand for all these developments in Lao Cai?
You should see the number of skyscrapers coming up across the border in China. I have a lot of faith in Lao Cai. It should be growing over the next few years.
Are you looking at any new initiatives?
Always. We are — I can’t say specifically — always looking at the region.
You forked out US$360 million for the asset in Poipet. That’s more than RM1 billion ($319.8 million), that’s a lot of money…
If you are just to look at the hardware, you’d think it’s a waste of money. But what we are actually buying is the name and the establishment, meaning it’s not a mature business, but a wellestablished one.
A sum of US$360 million sounds expensive, but think about US$360 million for a casino close to Bangkok, which is much bigger than Singapore. Bear in mind that Bangkok is a city of 12 million people… if you take Greater Bangkok, there are 20 million people. So, US$360 million for a Bangkok casino is cheap.
The Star Vegas deal also came with two years of profit guarantee — US$60 million for each year.
So, you are open to more borrowings, raising proceeds from the market?
Definitely, we’re open.
Success in Lao Cai due to Genting founder’s foresight
Joey Lim Keong Yew was still a student in 2001 when his late father, Lim Tee Keong, and late grandfather, casino mogul Lim Goh Tong, travelled to Lao Cai in Vietnam’s mountainous northwest region, bordering China’s Yunnan province.
Goh Tong, who founded the Genting Group, was invited by the Vietnamese government to look for investors to help build a casino there.
“He insisted we go through China. It was a 14-hour drive. Lao Cai was much, much, much smaller then. At the time, there was no big bridge linking Yunnan and Lao Cai,” recalls 37-yearold Joey.
“They (the Vietnamese government) offered him two locations — the first was Ha Long Bay and the second, Lao Cai.
“I love Ha Long Bay. It’s one of the wonders of Asia, a Unesco heritage site. The stone formations are beautiful... I said open [a casino] here, but my grandfather thought otherwise and said Lao Cai, Lao Cai, Lao Cai. It was a horrible place back then; I didn’t see it growing so much,” Joey says. “But he had the foresight, he didn’t miss a thing. Every trip, he insisted on going through China. At every town, we had to stop... he wanted to see the price of rice, how much a meal cost. And in Kunming, we took public transport. He didn’t want to be driven around, he wanted to see for himself what the local economy was like,” Joey reminisces.
Goh Tong even provided funding of US$10 million to help start the business, and parachuted some of his close aides — the top brass from Genting Group — into the Lao Cai development. They oversaw the construction and development and handled the operations initially.
“I only got very involved in 2006, 2007,” Joey says.
Pictures of the three generations of the Lim family line the offices of the casino today.
Joey, who is managing director of Australia-listed Donaco International, which owns 95% of Aristo International Hotel in Lao Cai and wholly owns Star Vegas in Poipet, Cambodia, recalls his grandfather’s words of wisdom to be patient when business was not up to expectations in the early days.
“‘Be patient. It will come,’ he used to tell me,” says Joey.
As the Vietnamese are not allowed into casinos in the country, Aristo International is positioned for the Chinese market, which explains why Goh Tong was so focused on the Chinese side of the border.
Back in 2001, Lao Cai was a small trading town, mainly selling banana and rice, but thanks to the boom in China, it is today a Tier 2 city. The town’s population has increased 10 times since then.
Donaco now has more than 3,000 employees and has been the official casino resort partner of one of football’s most valuable brands, Manchester United, since 2015.
With a lot more development by Donaco in the works in Lao Cai, the small border town could mirror the Genting Group’s Genting Highlands resort — albeit on a smaller scale — in years to come.