Singapore’s casino gross gaming revenue (GGR) is likely to grow in 2018, sustaining a trend already reported in the first half of 2017. So says a 2018 casino market outlook report from Fitch Ratings Inc.
“Singapore GGR grew by around 10 percent year-on-year in first half 2017, after falling by around 30 percent over 2015 to 2016,” noted the report team, led by Alex Bumazhny, senior director.
“We expect GGR to continue to grow in 2018, driven by sustained growth in visitor arrivals (first eight months of 2017 up 4 percent; 2016 up 8 percent),” wrote Fitch in the report issued on Monday.
“We do not believe competitive pressures in the Singapore market will increase in the near term as new licences are unlikely,” the ratings house added.
In a report at the start of this year, Fitch had said it expected combined gaming revenues at Singapore’s two casino resorts to be roughly flat at US$4 billion in 2017 compared to the prior year, on continuing “weak” VIP play.
Earlier this month, brokerage Sanford C. Bernstein Ltd said it was revising upward by 18 percent its full-year 2017 market-wide estimates for Singapore casino VIP GGR.
That institution now thinks combined 2017 VIP revenue for Marina Bay Sands, the gaming resort controlled by Las Vegas Sands Corp, and Resorts World Sentosa, controlled by Genting Singapore Plc, will be nearly SGD2.35 billion (US$1.73 billion), compared to its previous estimate of just under SGD2.00 billion. Sanford Bernstein expects most of the improvement in VIP to be driven by Marina Bay Sands.
“Fitch believes Chinese tourism expenditure is a key driver of gaming performance in Southeast Asia. Chinese visitors were the largest segment by nationality in Singapore in the first eight months of 2017, at 19 percent of total arrivals,” stated Fitch Ratings.
Mainland China was the biggest single source of international visitors to Singapore in the first half of 2017, contributing just over 1.55 million arrivals, an increase of 5 percent on the prior-year period, said data released recently by the Singapore Tourism Board.
Fitch’s Mr Bumazhny and his team said: “We feel VIP tourism across the region will continue to recover, and ongoing growth in mass-market gaming tourism will support regional expansion and Australian [casino resort] construction. Overall, we view the Asia-Pacific market as underpenetrated, at least in the mass-market segment.”
Fitch said the fundamentals for the Malaysian gaming market “remain stable, underpinned by a domestic, mass-market focus” at Resorts World Genting, the country’s only casino resort, operated by Genting Malaysia Bhd.
“Visitor arrivals at the resort were steady in first half 2017, but are likely to grow in 2018 as more attractions open following redevelopment,” said Fitch.
The ratings house said it anticipated Australian gaming operators’ VIP revenue would “stabilise” in 2018, following what it said was a 34 percent decline in 2017 “as a result of Chinese regulatory actions”. That was understood to be a reference to the market fallout caused by Chinese VIP players shying away from casino resorts in Australia following the detention in mainland China in October 2016 of some Crown Resorts Ltd marketing staff, and the subsequent conviction and sentencing in Shanghai in June this year of a number of them for “gambling related crimes”. Most of those jailed were released in July.
Fitch noted regarding the Australia market as a whole: “Resilient underlying domestic demand, supported by a favourable regulatory environment, continues to be the main factor supporting our expectation of stable cash and EBITDA [earnings before interest, taxation, depreciation and amortisation] generation in 2018.”
Fitch’s outlook for 2018 suggested Macau’s 2018 casino revenues would grow “in the high-single-digit range” of percent, or “slightly above China’s GDP growth”, and would be led by the mass-market segment.
“Macau’s gaming revenues grew 19 percent in 2017 through October, reflecting double-digit growth in the VIP segment (28 percent growth through September), which tends to be more volatile and is heavily reliant on credit availability on the mainland. Our 2018 and longer-term expectations discount the current year-to-date VIP trajectory,” stated the ratings house.
Fitch also gave some commentary on leveraging trends in companies in the casino sector globally – that have been affected by issues such as debt-supported capital expenditure on infrastructure in the case of some operators, or debt-funded merger and acquisition (M&A) in the case of casino technology suppliers.
“A number of companies that were left overleveraged after the recession or leveraging M&A are still focused on paying down debt. However, the pace of leverage reduction will slow as most companies are now operating within or close to their desired leverage ranges and are now starting to return value to shareholders,” suggested Fitch.
Fitch said it anticipated that in 2018 cash flow generation would improve sector wide.
“Free cash flow will improve across the gaming sector as opportunistic refinancings and growing EBITDA lead to higher cash flow from operations,” the institution stated.
“In addition, Las Vegas- and Asia-oriented operators such MGM [Resorts International] and Wynn [Resorts Ltd] are winding down their major developments. Absent major development opportunities in Japan or Brazil, Fitch expects operators to increase dividends, which will keep free cash flow relatively steady.”
Apr 26, 2018
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