Is CLSA Too Optimistic On the EBITDA? – Lion City IR Gaming Revenue

Posted: June 25, 2009 in Uncategorized

Is CLSA Too Optimistic on the EBITDA?

Contributed by:  Expert IR    BT on IR Revenue

June 25th, 2009

The Singapore’s Business Times published on 25th June 2009, on the Top Stories page where it quoted a report by CLSA stating that “Gaming important part of IR revenues”.  

Besides the usual plugging of figures to relate to potential business scenarios, the following points were significantly highlighted by CLSA. They are,

(1)          CLSA reveal s that for Marina Bay Sands (MBS), gaming EBITDA for 2011 – 2012 is estimated at US$700-800 million – about 75% of total Ebitda.

(2)          CLSA said that up to 40% of this (total gaming revenues) will come from locals.

(3)          The report said that LVS management expects gaming revenue to be bias towards VIPs rather then the mass market, with around 60-40 split.

(4)          Genting RWS… About 30% of the gaming tables are expected to be reserved for (junket) VIP players.


Expert IR QUICK Pinpoint View by Expert IR – 

Our principal contributor, Expert IR provides the following viewpoint,

(a)          It is not sure how CLSA derived at such optimistic EBITDA for Marina Bay Sands (MBS) – US$700-800 million. Basing on Macau’s revenue streams in the best period for LVS and casino cost structure, a more realistic attainment would be an EBITDA of US$400-500 million for MBS. And in that period, Sands Macau’s EBITDA margin was averaging at 34%!

(b)         CLSA was right to note that up to 40% of gaming revenue contribution would come from locals. In fact, at Professional Ground our panel has rated a higher percentage of contribution from locals which is between 45-50% or more. The reason being that the Lion City IR will take longer time to achieve its target of 17 million tourists. Definitely not by 2012.

(c)          In its entire history, LVS has never attained the magic split of 60-40% towards greater VIP gaming revenue. Based on its Macau experience so far, LVS management is weak in the VIP gaming arena but excels in mass gaming market, with its highly functional casino marketing system set up by a Chinese general manager in its formative days in Macau. Even with the low VIP gaming tax regime to be operated by the Lion City, sustainability of non-negotiable chips funding and consistent high turnover will be a challenge. Ultimately very large non-neg chip credit and high junket commission (the market already speculating of up to 1.8% commission level on win) will destroy business value. We all knew that VIP baccarat is extremely volatile in this market with its actual win/loss very close to the theoretical win percentage of 2.7% for casinos. Therefore, to operate on a bias 60% of VIP gaming revenue attainment, MBS needs to strengthen its true premium market operations (non-junket based) in order to create greater margins. To this end, LVS’s Paiza Club (supposedly a high-end premium/VIP gaming segment) experience does not show good results on direct premium market player development. To date, the Paiza Club is still very much filled by junket-driven activities. Therefore, it is mission-critical for MBS to beef up its direct premium segment capability in order to sustain on a 60-40% revenue that bias towards the VIP gaming.

(d)         For Genting RWS with only 30% of their gaming tables allocated for VIP gaming (and also, junket-driven) operation it seems to be a more realistic arrangement. RWS will emphasize on mass market revenues to support its EBITDA goal and at the same time, trying to achieve greater operating margins. Mass market/gaming provides the answer.

* This expert analysis is strictly Copy Right Reserved.

  1. David Sofer says:

    Great analysis, Expert IR! Uncle Harry is no genius but he is RIGHT about gambling! Underlying your bullet points is the fact that IR success will probably generate that Lion City gambling epidemic that Uncle Harry is afraid of, only somewhat held in check now by geography. Around Las Vegas there is word that a local Baccarat group of 100 that plays Baccarat according to the teachings of a brilliant Harvard educated overseas Chinese mathematical genius is starting up a Lion City Chinese Baccarat group to play IR Baccarat, there is further word that $100 million US in funding will be behind them by the time first IR opens its casino gates! So, Expert IR, even more than you know, your EBITDA analysis is SPOT ON. Cheers!

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