Singapore’s casino market is likely to contract by 4 percent in 2015, says a new report by Morgan Stanley Asia Ltd.
“Singapore gross gaming revenue (GGR) is likely to see 4-percent year-on-year decline in 2015 driven by fall in VIP volumes and flat/negative mass market,” analysts Praveen K. Choudhary, Xin Jin Ling and Alex Poon wrote.
The report, released on Tuesday, noted that in the first quarter of 2015, Singapore’s VIP volumes were down 39 percent year-on-year, while mass revenue (including slot-machine revenue) dropped 3 percent compared to one year earlier.
“Although Singapore is making an effort to initiate a rebound in the Chinese inbound tourism industry with the Singapore Tourism Board announcing that the validity of Multiple Journey Visas issued to nationals from the People’s Republic of China can be extended up to a maximum of 10 years, we do not think this is likely to increase Chinese VIP visitation to the casinos,” the Morgan Stanley team stated.
“Gaming volumes will be dependent on credit provided by the casinos, which remain cautious due to the high level of bad debt provisions,” it added.
Singapore has two casinos: Marina Bay Sands, owned by Las Vegas Sands Corp; and Resorts World Sentosa (pictured), a development of Genting Singapore Plc.
In Tuesday’s report, Morgan Stanley cut its price target for Genting Singapore from SGD1.05 (US$0.77) to SGD0.85, mentioning lower than expected first quarter earnings before interest, taxation, depreciation and amortisation (EBITDA) and earnings per share.
It stated: “Genting Singapore remains cautious on extending credit. Bad debt provision could remain high at 19 percent of VIP revenue in 2015. We also do not expect Jurong hotel (opened in May 2015) to drive mass market since most of the guests are part of tour groups.”
Genting Singapore’s Genting Hotel Jurong, near Jurong Lake, is approximately 15.4 kilometres (9.6 miles) from Resorts World Sentosa. According to an April statement from Chow Keng Hai, vice president of rooms at Resorts World Sentosa, the goal of the new property was to “boost Resorts World Sentosa’s room inventory” and drive up the number of visitors to the casino resort.
Morgan Stanley also noted that Genting Singapore’s market share declined to 41 percent in the first quarter of 2015. “With weakness in the VIP segment, [the] extra cost burden of Universal Studio, and Marina Bay Sands having a location advantage for the mass segment, market share could continue to trend lower,” the brokerage said.
Its analysts acknowledged however that if Genting Singapore were able to attract more players, it could surprise investors.
“In our view, Singapore’s gaming market is structurally better than Macau’s due to less reliance on junkets and Chinese VIP customers, lower tax, 30-year gaming licence and a duopoly,” Morgan Stanley said.
“If Genting Singapore’s EBITDA share of Singapore market goes back to 2011 levels, profit could rise by 45 percent. Excess cash could be better used as either dividend or invested overseas.”
It was announced on June 30 that Singapore Tourism Board is to work with Singapore Changi Airport – the main civilian air hub for the city-state – and the state air carrier Singapore Airlines Ltd, to invest SGD20 million over two years to encourage more leisure, business and meetings and conventions visitors to come to Singapore.
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“Amendment to the gaming law is still a work in progress ... We need to wait for further details, in terms of the finer form that the amendments will take, and there will be additional regulatory measures that will be potentially issued thereafter”
Chief operating officer of Sands China