Japan and South Korea are likely to be the only places for Genting Singapore Plc to expand its casino operations, says a note from Union Gaming Research Macau Ltd. Genting Singapore has seen challenging trading conditions recently in its core business as a Singapore casino operator.
But a snap general election in Japan scheduled for this month, and pushback on casino policy by the local government on South Korea’s Jeju Island – where Genting Singapore wants to build a casino resort – are creating fresh barriers for the company.
Genting Singapore, a subsidiary of Malaysian conglomerate Genting Bhd, developed and operates the Resorts World Sentosa (RWS) property in Singapore. Genting Singapore last month reported a 43-percent drop year-on-year in net profit for the third quarter of 2014, mainly on tough trading conditions for VIP play and a sluggish mass market.
“When thinking about alternative greenfield opportunities, it isn’t clear to us that there are other obvious opportunities for Genting Singapore outside of Japan and Korea,” Union Gaming said in a note on Thursday.
“Genting Malaysia [also a unit of Genting Bhd] already has a foothold in the U.S. (Resorts World New York), and also has a foothold in Europe (U.K. Mayfair),” wrote analysts Grant Govertsen and Felicity Chiang.
“As such, we believe that any U.S. opportunities – including the development of Resorts World Las Vegas (the former Echelon site) would be handled by Genting Malaysia, as might any potential opportunities in Europe.”
According to the Union Gaming team, Genting Singapore might not have many opportunities to explore closer to home.
“Given the high standards of compliance required to operate in Singapore, we believe opportunities in places like the Philippines, Vietnam, Cambodia, etc. are also off the table and in all likelihood would fall to other Genting entities should any development opportunities arise,” they said.
Waiting game
Genting Singapore is planning via a joint venture with a mainland China firm to open a casino resort at Jeju Island in South Korea. The governor of Jeju however is showing resistance to the construction of a new casino resort there.
The company, which in June postponed the ground-breaking ceremony for the scheme, last month said it is “encouraged by the positive response of the people and government of Jeju” to its proposal.
“With respect to Korea … the project’s total development cost could be up to SGD2.2 billion [US$1.7 billion] (of which about half would, in theory, be attributable to Genting), although the net cash cost to Genting should be minimal per management commentary that much of the project cost is expected to be bought down via residential sales,” said Union Gaming.
“This is, of course, assuming that the project moves forward, which we should have greater clarity on next year,” the analysts added.
The Genting brand is actually set to enter South Korea’s gaming market next year, but via a partnership that involves Genting Hong Kong Ltd.
In Japan, Genting Singapore will have to play a waiting game, said Kevin Low of Malaysia-based Affin Hwang Capital.
The casino operator has set up several wholly-owned subsidiaries in Japan in the likelihood that the country will legalise casino gaming.
“The unexpected snap elections in Japan will likely dampen Genting’s aspirations to enter a potentially lucrative market,” said the Affin Hwang analyst.
Japanese Prime Minister Shinzo Abe last month dissolved the lower house of parliament and called a general election for December 14.
Prior to the parliament’s dissolution, the ruling Liberal Democratic Party (LDP) held a majority in the lower house and was relying on junior coalition partner Komeito in the upper house to pass the casino bill. Initial expectations had been high that the casino bill could have been passed in the Diet session that ended on November 30.
“Media reports suggest that Abe will likely win the snap election, but will need to win substantially to have enough support to pass the casino bill,” said Affin Hwang’s Mr Low.
“Still, we believe that the prospect of high gaming tax revenue to aid fiscal consolidation efforts will keep Japan’s casino bill alive, as long as social issues such as creating gambling addicts or attracting organised crime can be properly addressed,” he added.
