Why Macau Casinos Could That RWS Can’t?

Posted: February 24, 2010 in Uncategorized

Commentary by: Professional Ground team of panelists

24th Feb 2010          

It looks like the dust has settled down? Over the “debates” on whether the Lion City’s casinos would be another oasis in the seas of casinos.

Since the opening of the Resort World Sentosa (RWS) on the first day of Chinese New Year, not so encouraging reports and stories overwhelmed good news. But this is precisely the inevitable outcome.

In summary, key information are worthy of more serious examination for projecting the Lion City’s casino landscape. This may be the “creeping determinism” that is at work, that the sense of what has happened was actually inevitable. (From the book “What the Dog Saw”). The key information that lead to RWS’ weak performance and sent its stock price south by 30% since Jan 2010, are as follows:

(1)          That there were irrationally high expectations on RWS’ capability and the market before the actual opening. (As analyzed by Citigroup).

(2)          That many investment analysts had forgotten about prolong weak performance of Genting Highlands, UK (Stanley) casinos and Star Cruises. This information is closely associated with the ability of this casino enterprise’s investment judgment and execution. Also to look at the group’s most recent casino resort investment (through Star Cruises) in the Philippines.

(3)          That the Lion City State imposed very strict casino (junkets) control regulations. This is a piece of key information that could make or break the casino VIP gaming business. Disappointing response from the junkets community is a valid feedback towards such limiting business environment. Initial analysts’ common projection of at least 55% of casino revenue should come from VIP gaming business is now out-of-the window.

(4)          Primary information also includes Propensity of Gaming Expense (budget), Local Players’ Levy and “Zone Factor”. Our panelists opined that, contrary to many people’s belief that a casino built next to a theme park (close zoning) would bring about a win-win situation. This is only true as in the case of a locked-in locality such as Genting Highlands. Where visitors are confined to a destination and cannot “escape” easily. For RWS, it is against the wills (and interest) of travel agents and tourists to try lock-in visitors to the resort too long a time especially in casino. From experience, group tourists’ lock-in time in a casino is at best between 30 minutes to 45 minutes on average. It can be envisaged that the Universal Studios theme park will be in competition with RWS casino for limited time schedule for tourists.

(5)          Propensity of expense on gaming for Singaporean locals including its permanent residents (Malaysian, Indonesian, mainland Chinese, Indians etc.) is a much smaller pie as compared to Macau. Costs of living in Singapore are high on property, transports/cars; coupled with risk-averse mentality to life. RWS has experienced generally small betting by the locals and this syndrome reflects the reality of low propensity on gaming expense. Without strong local contribution of gaming expense, IR casinos will face great challenge to recoup a total of S$12b investment.

(6)          From the first two days of casino revenue that was released against the wish of RWS, a daily gross average of S$3.6m casino revenue (on Chinese New Year) is just approximately 36% of Macau’s per capita visitor contribution to casino gaming. This is key information to take note of.

(7)          Bearing in mind low per capita visitor contribution (to casino revenue) when Marina Bay Sands opens, casino revenue war will be escalating between the two IRs. The one IR casino that fails to secure at least 60% of the total market share will struggle for breath. This is another key information to be seriously taken note of.

In conclusion, the “back down to earth” performance of RWS is conforming to what the reality is, when the dust of hype and false hope are finally settled down.

Reality vs Hype

AFTERNOTE:    Current Genting Singapore stock price clearly reflects on irrationally high expectations over RWS’ casino performance before its opening.

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