Marina Bay Sands – Making A Statement

Posted: June 24, 2010 in Uncategorized

Sands Billion-dollar Baby… The Bay Thing
 24 June 2010 Thur
Commentary on Marina Bay Sands Opening Gong
Sands COO said that it expects a 25% return on investmentfrom it’s US$5.7b Singapore integrated resort and this means that annual ebitda will have to be in the region if US$1b to US$1.2b. Sands is confident of hitting its targets.
DBS Vickers says that Sands profit target is rather “ambitious”.
“We believe MBS’ MICE operations will need some time before it can attract the desired level of critical mass which will help boost its gaming operations. Without junkets’ help, MBS’ VIP segment growth will likely be much slower, coupled with the fact that its Southeast Asian client database will need to be beefed up considerably.” Said DBS Vickers in a report.

Early Assessment by Professional Ground:
* We agree with DBS Vickers in which the targets of Marina Bay Sands ebitda is too “ambitious” considering that, the property has yet to build up a large enough pool of VIP gammers as well as still lacking a sizeable level of “high limits” plays to be developed from its vastly low utilization rates casino floor.
* It is unlikely that MBS would be able to achieve and sustain 150,000 “hard-consumer” daily visitors in its Marina Bay property. Many of which (if it does happen) will be weekend labourers, window-shoppers and low budget Malaysian bus travelers. As for casino pax, local pariticipation rate will be at 1/3 of total player pool.  MBS may acquire (daily) casino patrons at the level of 16,000 in weekdays and up to 20,000 in weekends considering the effect of cannibalization that has already taken place between the two IR casinos.
* There is still no sign of MBS is particularly strong in acquiring major and large scale conventions & trade fairs in the region to come over to Singapore IR. If Venetian Macau were to be used as a gauge for their capability in region’s convention business, in that case MBS must put in tremendous effort to prove it otherwise. That was exactly what Singapore’s Lee Kuan Yew commented that such property would take 3 – 7 years to reach its full capacity. It is no longer the myth of “build it & they will come” story.
* The current state of affairs for IR casino landscape seem to point towards a scenario of cannibalization of a gaming market that is approximately 20 – 22% of current Macau’s (at USD14b end of 2009). A lower than the expected total gross gaming revenue (USD2.8b – USD3.1b) may be the outcome if the market does not grow and sustain with critical mass casino patrons and win per unit.

* Another factor would be the spread of VIP and Mass casino revenue achieveable by MBS. Coupled with mass market cannibalization between them and RWS, it is rather challenging for MBS to try establish a 50-50 split on their efforts for VIP vs Mass gaming revenue. ebitda margins will be driven down unless MBS is capable of consistently high turnover of chips (VIP) and yet capping its credit losses and costs on a highly volatile business platform. Junkets involvement is still to be closely watched in terms of its contribution across the board, in a jurisdiction that does not favour junket operations.

* Without junkets to boost VIP gaming turnover, MBS faces tall order to grow their own direct high-rollers network in the region. With lower chips turnover volume, that will add to volatility in VIP Baccarat.

* An ebitda in the region of USD600m – USD800m may turn out to be a more realistic outcome under such scenario. But you never know.


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