IR Casinos Brief Review

Posted: May 26, 2010 in Uncategorized

26 May 2010

Review of the Lion City IR Casinos   

* From the Professional Contribution section posted earlier   (Feb, 2010)   –  It was reported that,   Ronnie Chan, chairman of Hang Lung Properties Ltd., Hong Kong’s fifth-biggest developer by market value, said recently in a Bloomberg Forum in Hong Kong that the two casino-resorts in Singapore will fail because they won’t be able to attract high-rollers:

“The big rollers are what make money in casinos, they will never come to Singapore, it’s a family entertainment” location. You think big-rollers will go to Singapore where they have teeth and fangs coming out sideways? There are too many rules. I was in Sentosa island, I really think that it’s going to be a flop…..The whole integrated entertainment industry, I’m worried for them. The good thing about Singapore is that if you flop, you’re given a second chance,” he said.

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PANEL REVIEW

Now that both the IR casinos had opened and in operation, are the above comments still making sense?  Panelists of Profession Ground have this to say,

*  We see that the main bulk of foreign visitors will continue to come in from Malaysia (via busing program run by casinos) to form at least 35 – 40% of the total mass market casino patrons.  Recently published tourism stats by Singapore has confirmed this trend.  Together with the locals (about 33% particiaption in casino) the Malaysians help to contribute up to >70% of total casino patrons.  The casinos’ busining program to and from Malaysia will end up in same effect that’s the model of operation for Atlantic City, New Jersey jurisdiction in the USA.  That majority of visitors via the buses from up north are lower expense mass market patrons.

*  The question to ask is whether these numbers are sustainable and also, whether the averaged bets at the casinos will go up over time?  (Apparently the betting level remains low).  The locals currently “support” the IR casinos with averaged daily trips of 8,235.  If this number goes up over time, it may trigger an increase in the local casino entry levy from the current level of SGD100, to counter negative social issues.

*  The recent announcement of Genting Singapore and Resorts World Sentosa quarterly results were rather luke warm.  Its casino performance (RWS) for the quarter was below analysts expectations.  With newly opened 1st ever casino on the island city state aduring Chinese new year period and without Marina Bay Sands in the race yet, the EBITDA of SGD109m is unimpressive.

*  It is rumored that IR casinos and Junkets are getting around the casino control regulation by staging so called “Pseudo VIP players” scheme.  i.e. these junkets would disguise as high-rollers (direct premium players) to check-in money to the casino and then “redistribute” the chips to players they are bringing in.  The key question been asked by investors & analysts is whether this is allowed by the authority? 

*  On this rumored Pseudo VIP practice, we would think that even this is allowed by the authority at this stage (assuming that they knew about this), the junkets will not be able to sustain with lower player turnover rebates instead of authoried commission (because they checked in as direct vip players).  Unless the casino is willing to share credit risk exposure with these junkets, it is a scheme that only provide very short-term boost in VIP business numbers. Even that, such “evasive” operation is unlikely to generate consistent high volume of chips turnover coupled with increased credit over time, that in order to grow a sizeable VIP gaming business like what Macau is in. 

*  So the question remains, is there really enough critical mass and sustainable high-rollers market in this part of the world?  In particular, it is known that genuinely direct premium players market is still in very short supply across Asia.

SUMMARY

Objectively, things are still in early stage though the IR casinos are facing the odds.  Analysts and investors should track IR’s financial results closely for the next 2 – 3 quarters.  By then, dust would have settled and a much clearer picture will open up.  Especially so for hedge fund managers looking for investment opportunities in Asian gaming landscape.

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