Casino operators in Clark as well as Newport World Resorts operator Travellers International Hotel Group loom as the most likely bidders to purchase some PAGCOR-run casinos, according to a new report by Maybank Securities.
But any such sale may require a revision of PAGCOR’s asking price with the agency’s current estimates valuing its properties at a premium to the likes of Philippines market share leader Bloomberry Resorts and even Macau names such as Sands China and Wynn Macau.
The sale of PAGCOR’s casinos was flagged by its Chairman and CEO Alejandro Tengco last month, who revealed plans to privatize before the end of his term. The sale is seen as the solution to a perceived conflict of interest between PAGCOR’s roles as both a regulator and operator.
The agency currently operates 43 casinos nationwide, of which 14 are located in Metro Manila, 16 in ex-Metro Manila, eight in the Visayas region and five in Mindano.
In a Wednesday note, Maybank Securities analyst Miguel Sevidal said buying interest would likely be low at PAGCOR’s combined asking price of Php80 billion (US$1.44 billion) but suggested potential bidders could include Travellers and some Clark operators such as Hann, Royce and Midori.
“Travellers may be a candidate, given its medium to long-term plans of setting up small casino-hotels in tourism estates, which management communicated during the recent 4Q22 earnings call,” Sevidal explained.
“Travellers will see a near-term boost, however, from Resorts World Westside (400 tables, 1,200 slot machines), which we expect to open by 1H25.
“Existing operators in Clark may be interested to bid to expand their regional footprint. On top of the 10 casino sites in Metro Manila, eight of the PAGCOR properties are situated in the Central Luzon region, within vicinity of Clark. The Central Luzon region notably benefits from above-average disposable income growth and infrastructure development.”
Melco Resorts, operator of City of Dreams Manila, could also see strategic acquisitions as a way to claw back market share, however neither Solaire – which is focused on its own integrated resort developments in Quezon City and Cavite – and Okada Manila, which is targeting the premium market, are unlikely to show any interest.
Either way, Sevidal said PAGCOR’s asking price looks expensive.
“PAGCOR said it aims to sell its assets for Php80 billion, implying a trailing EV/EBITDA multiple of 14x to 24x based on the industry EBITDA margins of 21% to 37%,” he wrote. “This valuation represents a premium to [Solaire operator] Bloomberry FY22A EV/EBITDA of 12.2x.
“Considering the slower post-Covid recovery of PAGCOR casinos, below-industry GGR growth observed for PAGCOR casinos, likely high costs for rehabilitation and integration with existing properties for prospective buyers, and previous transactions for integrated resorts outside the Philippines fetching valuations of 13x to 16x EV/EBITDA, imply that PAGCOR’s proposed valuation is steep.
“We do not expect a transaction to occur at these valuations, which are in line with Macau casinos. Philippine casinos have historically traded at a 25% discount to Macau operators.”
PAGCOR casinos generated Php15.8 billion (US$284 million) in GGR in FY22, equivalent to 7% of the country’s total GGR. At the right price, Sevidal added, any sale of PAGCOR operations could add 10% to Entertainment City’s GGR and increase the local mass market exposure of existing operators.
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