The fundamentals of Singapore’s casino market are deteriorating and that might impact its “steady” performance, warns a new report from investment bank Morgan Stanley.
“While investors remain largely focused on headwinds in Macau, we believe deteriorating fundamentals in Singapore represent an underappreciated risk,” stated Thomas Allen and Mark Savino, from Morgan Stanley & Co LLC, and Praveen K. Choudhary, from Morgan Stanley Asia Ltd.
They added: “We have cut our Singapore estimates to reflect a weaker economy and the meaningful Singapore dollar strengthening affecting foreign demand.”
Singapore has two casino resorts: Marina Bay Sands (pictured), owned by Las Vegas Sands Corp; and Resorts World Sentosa, a development of Genting Singapore Plc.
One of the issues highlighted in the Morgan Stanley report, issued on Tuesday, was the recent continued appreciation of the Singaporean dollar versus other Southeast Asian currencies. The report suggested that can have a negative impact on the spending power of tourists visiting from those other currency areas – some of them key feeder markets for Singapore’s casino industry and for the city-state’s tourism market as a whole.
Morgan Stanley economists expect the Singaporean dollar to continue appreciating against Malaysia’s ringgit. They estimate the Singaporean dollar will be 5 percent higher year-on-year – judged against Malaysia’s currency – by the third quarter of 2016.
“The Singapore dollar has also appreciated/is expected to continue appreciating versus the Indonesian rupiah, but to a lesser extent,” the Morgan Stanley report added.
Union Gaming Securities Asia Ltd earlier this week said the third quarter results of Genting Singapore are likely to be negatively impacted by “continued currency headwinds for two core customer geographies, Indonesia and Malaysia”.
“We also see risk from a slowdown in the broader Singapore economy as gross domestic product (GDP) growth has begun to weaken,” the three Morgan Stanley analysts stated.
They added: “We note that since Marina Bay Sands opened in April 2010, it has benefited from operating in a relatively robust Singapore economy, benefiting the stability of the property’s EBITDA [earnings before interest, taxation, depreciation and amortisation]. However, this has been aided by the strength of China [17 percent of Singapore’s GDP comes from exports to China], while Singapore itself has seen significant volatility in its gross domestic product growth over the past 20 years.”
Morgan Stanley’s 2016 estimate for Singapore GDP growth of 2.8 percent would represent the lowest annual growth since Marina Bay Sands opened.
“Our channel checks suggest that the economy may be headed below that level,” the three analysts noted.
They also mentioned “deteriorating” demand from Chinese gamblers as another factor negatively impacting Singapore’s casino market.
In the Tuesday report, Morgan Stanley lowered its EBITDA estimates for Marina Bay Sands by 5 percent for full-2015 (to US$1.45 billion) and by 12 percent for calendar year 2016 (US$1.38 billion). The report did not include estimates for Genting Singapore.
Morgan Stanley in July predicted that Singapore’s casino market was likely to contract by 4 percent in full-2015.
Fitch Ratings Singapore Pte Ltd earlier this month stated that the outlook for the casino gaming industry in Singapore continued to be “stable”. The ratings house cited “robust” EBITDA margins “in excess of 30 percent” at the two Singapore resorts.
Marina Bay Sands’ adjusted property EBITDA was US$363.3 million in the second quarter of 2015. On a constant-currency basis, that was down 6.4 percent from the prior-year quarter. Casino revenue at the property fell 12.5 percent year-on-year to US$565.7 million in the three months to June 30.
Genting Singapore’s performance for the same period was worse, as the gaming operator swung into the red, with losses of SGD16.9 million (US$11.9 million), from a profit of SGD102.3 million in the prior-year period. Revenue fell 23 percent year-on-year to SGD578.1 million.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China