After a quarter century of virtually uninterrupted success, Naga Corporation faces two unprecedented challenges. For the operator of NagaWorld, the monopoly integrated resort in Cambodia’s capital Phnom Penh, one situation is far more easily addressed than the other.
In the post-Covid climate of decreased mainland Chinese international travel and the Middle Kingdom’s diminished appetite for overseas investment amid domestic economic woes, NagaWorld’s 2023 gross gaming revenue of US$514.8m was down 70% from US$1.7bn in 2019.
Its net profit fell 71% to US$52.3m, and EBITDA was off 56% to $295.3m. Naga shares traded in Hong Kong have tumbled from an all-time high of HK$14.28 (US$1.83) in October 2019 to below HK$4 now.
Compounding the financial downturn, Naga’s visionary founder and CEO Chen Lip Keong passed away in December at age 75. The Malaysian-born, physician-turned-property mogul, Chen entered Cambodia in the early 1990s searching for oil, but his legacy would be cemented in the realm of gaming, lifting not only his own fortune but also the economic prospects of his host nation.
“Dr Chen’s biggest contribution and the thing I admired about him was his ability to envision what others scoffed at,” said former Naga adviser Adam Steinberg. Indeed, Chen’s dream materialised into a world-class resort in a developing nation, starting operations on a rusty barge on the Bassac River. Years later, it holds a gaming license until 2065, with a monopoly in Phnom Penh extended to 2045.
Euro Pacific Asia Consulting’s Shaun McCamley highlighted Chen’s instrumental role in spotlighting Cambodia as a gaming destination, a sentiment echoed by Steelman Partners CEO Paul Steelman, the architect of the Naga2 expansion that propelled Naga into Asia’s top tier of integrated resorts.
In the geopolitically charged environment, Naga sought to weave through the intricacies of Cambodian and Chinese politics. The loss of the Vladivostok project in 2022 due to the Russia-Ukraine conflict, however, showed the company’s vulnerability to international relations.
Despite difficulties, management maintained Naga’s focus on the Chinese market, amplifying efforts to become “China-ready” even as Chinese overseas travel slowed. Meanwhile, the gaming industry witnessed a paradigm shift with VIP gaming being subdued after a crackdown by PRC authorities.
Analysts from Morgan Stanley suggest that concrete plans are needed to bolster growth and reclaim investor confidence following a share downgrade. The pivot to a mass market focus, akin to other Asian operators, could be a beneficial strategic shift.
Against this backdrop, Naga decided to delay the ambitious Naga3 project by four years to 2029. The delay is seen as a strategic move to align costs with revenue, although it raises concerns about the ROI and the evolving market conditions.
Non-gaming revenues, only 4% of Naga’s revenue stream last year, point to an area ripe for improvement with Naga3, which is poised to expand retail, F&B, and entertainment amenities.
Following Chen’s death, a novel CEO arrangement was put in place with his three sons taking different functional areas. This has been part of the transition plans, with Chen Yiy Fon now at the helm as group CEO.
The resort itself demonstrates adjustments to new realities, with reduced minimum bets and an enhanced focus on regional popular games that cater to the Southeast Asian market.
Naga’s capability to adapt and innovate will be critical for its continued success, especially as it realigns its strategy in accordance with market trends. Despite the challenges, the groundwork for future developments continues, echoing the indefatigable spirit of its late founder, Chen Lip Keong.
