PHNOM PENH -- Cambodia's casino scene, a diverse but relatively modest collection of businesses confined largely to sketchy border towns, offers little inspiration or rewards for the typical high roller. Apart from a small number of gambling "palaces" that have carved a niche among wealthy Thais or other Asians, most are struggling in an increasingly competitive market.
Of the 65 casinos operating in Cambodia, few are as sophisticated and none are as successful as Phnom Penh's NagaWorld. On any given night the capital's only casino is heaving.
Run by Hong Kong-listed NagaCorp, NagaWorld has been on the rise as one of the most profitable of Asia's smaller casinos, consistently reporting strong earnings that outpace all its local rivals. The property, often blighted by construction surrounding its riverside location in central Phnom Penh, has been bucking the downward trend as the region continues to feel the chill of the downturn in Asia's leading gambling center Macau -- the result of China's anti-corruption drive.
In the first half of 2016, NagaCorp's year-on-year net profit increased 24% to $125.2 million and its gross gaming revenue 10% to $277 million, outperforming many of the region's casinos as Macau's gross gaming revenue sunk 11%.
Annual net profit has soared from $44.1 million in 2010 to $172.6 million in 2015, and the company's stock price has more than doubled in the last five years to HK$4.30 as of early December.
The casino and hotel, which has 713 rooms and 87 mass-market gaming tables, is on a determined growth path, recently opening a luxury retail space and proceeding with plans to open a second complex, Naga 2, with more than 1,000 rooms and between 200-300 tables, within 2017.
NagaCorp's Chairman Timothy McNally told an industry gathering in November that the company is already planning a Naga 3, complete with more hotel facilities and possibly a theme park.
NagaCorp also plans to launch a gaming resort in Vladivostok, Russia, by 2018, and up until recently was pursuing a casino license in Cyprus before pulling out at the final bid stage. The company would only say that the decision to withdraw was made in the "best interests" of its shareholders.
Company executives say growth in the business has been driven by rising tourism numbers to Cambodia, particularly from China, efforts to attract players shying away from Macau, and a further upturn in the country's already thriving economy.
NagaWorld, which attracts the so-called "poor man's VIP" market, has been working with Chinese travel agents and Cambodian independent airline operator Bassaka Air to bring more Chinese visitors via scheduled flights from Changsha and Xi'an.
"Its VIP story is clearly still intact despite the continued weakness in markets like Macau," said gaming analysts Union Gaming Securities Asia in a recent note.
While Cambodia has no law on gambling and no gross gaming revenue tax -- just a fixed monthly payment casinos must make -- the government collected $37.4 million from the industry in the first nine months of 2016.
For Naga, its monthly obligation equates to an effective tax rate of 2% tax on its gaming revenues, a fraction compared to 20% tax in the Philippines and 39% in Macau.
Cambodia's draft gambling law is expected to pass next year, but Union Gaming expects any tax levied to be less than 4% -- or unchanged.
Steve Karoul, president of Euro-Asia Consulting, told the Nikkei Asian Review that low gaming tax and loose regulations have been instrumental in broadening Naga's appeal. "They focused on smaller VIP players and smaller junkets and therefore were able to provide better rewards and incentives to these players and junkets compared to what they might receive in Macau," he said.
As an example, NagaWorld's offer of 90% of VIP play on credit is seen as a deal that's "too good a deal to pass on," noted Shaun McCamley, a partner with gaming consultancy Global Market Advisors.
NagaWorld attributes its success to foreign customers, but it is no secret that Cambodian nationals -- who are legally prohibited from gambling - manage to contribute heavily to its revenues, analysts say. A recent visit to the casino and interviews with patrons revealed many Cambodians among the casino's customers.
Ben Lee, former chief marketing officer at Nagacorp, said he had earlier recommended that the company shut down a struggling initiative to diversify the market away from reliance on locals and attract Vietnamese bus tours with cheap rooms and other incentives.
"That bus program at that time was a loss leader," he said, estimating that the current mix of players currently is around 80% Cambodian ad 20% mainly regional gamblers.
Sealing the deal
At the heart of NagaCorp's unrivalled dominance of the capital's gambling business is its coveted 70-year government-granted license, that ensures no other casino can operate within a 200km radius of Phnom Penh.
In the mid-1990s Phnom Penh hosted several casinos, some of which were operated by powerful businessmen, said Tim Shepherd, co-founder of Silver Heritage, which operates casinos in Nepal and Vietnam.
However, in a deal with the government, Malaysian businessman Sri Dr Chen Lip Keong launched Naga Resorts Casino in 1995 on a barge anchored on the bank of the Bassac River in Phnom Penh, and with its monopoly saw the closure of casinos in the capital and the emergence of Poipet as a bustling casino hub. In 2003, the casino moved to its current palatial home in the capital.
NagaWorld's unique gaming privilege insulates it from economic and political risk, agree analysts. However the casino has come under fire by Cambodia's influential Buddhist Institute over an extension of the property that could see it encroach on the institute's land.
"NagaCorp also has the right to operate a casino of any size anywhere within the restricted area and offer any table game or slot machine without needing to get additional approval from the Royal Government of Cambodia," Yuanta Core Pacific Securities, a Taiwan-based investment advisory firm, wrote in an earlier report.
Sharing the wealth
Though Naga's investment appears solid, and the casino industry looks set to thrive as new licenses are issued - there are currently 77 according to the finance ministry spokesman -- Naga's leading position could be threatened if a new government or new leadership comes to power in Cambodia.
In the 2013 national election, the Cambodia National Rescue Party, supported by young voters eager for change, dealt a blow to the ruling party after it won 55 seats in parliament and the Cambodian People's Party won 68 seats compared to 90 in 2008.
Son Chhay, senior opposition lawmaker, said the casino industry was rife with corruption and vowed to "seriously examine" it if the party won the next election.
The lack of revenue collection has meant casinos have been "very bad for our economy," he said, indicating that under an opposition government taxes would be hiked and NagaWorld's monopoly would be rescinded.
"As a free market economy we should be open for competition, we cannot allow just one casino in Phnom Penh. No doubt about that," he added.
Yet, while analysts say the CNRP, disrupted by government efforts and divided, does not look strong enough to win the upcoming 2018 election, the question remains as to how long the ruling party can continue on a path littered with "political debts and favors owed" - some to the gambling industry -- amid mounting calls for reform.