DGate ... Feb 2009

Dgate makes casino slot machines.

The consolidation of the Cambodian gaming industry and stricter rules for Chinese citizens entering Macau.is expected to hurt its earnings going forward.

Dreamgate's net profit in the nine months ended September 30 2008 fell 28.8 per cent to RM19.9 million from the same period in 2007.

A few months ago, the Cambodian government ordered all slot machines at entertainment clubs and shophouses to be removed within six months and that its citizens be banned from patronising slot machines.

While Dreamgate may relocate some of its concession machines to 70 per cent-owned Mekong Hotel & Club and 60 per cent-owned Chateau De Bavet, it may incur costly relocation expenses. In essence, it will relocate some 1,500 of its concession machines to the Philippines and Macau.

As at September 30 2008, Dreamgate had 4,826, or 76 per cent, of its concession machines installed in Cambodia, a significant risk to earnings. Furthermore, slot machine sales to Macau are expected to remain sluggish.

The imposition of visa controls and easing tourist arrivals due to the global slowdown are forcing Macau casinos to dispose of non-performing slot machines.

Until 2006, Macau was Dreamgate's largest market for slot machine sales under its sales and marketing segment. Slot machine sales to Macau were already declining before the slowdown and will likely remain weak.

There is unlikely to be a large slot machine replacement market in Macau in 2009 and 2010, assuming a five-year life span, as there were only 2,254 to 3,421 slot machines in 2004 and 2005.

Although the Manila Bayshore, Marina Bay Sands and Resorts World Sentosa are nearing completion and expected to create a market of at least 6,000 slot machines to be delivered by early next year (2009).