Boom Or Doom? Marina Bay Sands & Genting RWS

Posted: October 4, 2010 in Uncategorized

Scenarios for Las Vegas & Singapore IR Gaming Trades
4th Sept 2010 MON
Contributed by: Alan Koh (Singapore)

The most recent report published in Las Vegas news points towards a down-hill doomsday scenario for one of the most happening casino and entertainment hubs in the world -Vegas, the lights never go out.

It is irony that this time round the Sin-city’s lights may go much dimmer than past crisis it faced. Unemployment rate hits 14.7% now and the city’s main pillar of economy (construction) has come to a stop. The city faces greatest economic decline since the opening of its first casino in 1940s.

Those who understand casino trade would know that this industry is heavily dependent on a proven business model: Invest-Incentives & Innovation-Reinvest. But when construction (which consists of major portion of investment & reinvestment strategy) grinds to a stop, the writing IS ON The Wall ! If employment is not improved upon, sooner or later more people will vacate and leave the city permanently. The plausible scenario for Las Vegas remains with more downside risks over the next 2 – 3 years, riding on the bumpy road of US economic recovery. Under this scenario, MGM and LV Sands, coupled with their heavy gearing and overly spread, have to move faster and deeper into its Asian gaming markets otherwise, risk losing all.

Zoom back to Singapore, touted as the most promising casino hub beside Macau in Asia is worth taking a second look. Analysts have high hope about the two casinos rate of return as well as their USD6b in total casino revenue target. Much have been said about how the analysts came to this conclusion, let the next two quarters to prove their crystal ball gazing. Readers may want to know some of the macro economic factors that will determine the fate of the IR casinos – Marina Bay Sands and Genting RWS.

Macro economic influence (on Singapore casinos):

* First thing first, the size of this market. Regardless whether it is said to be USD3b, USD4.5b or even USD6b, it is obvious that Malaysia is the biggest pie of this region to be tapped by IR casinos. Both the casinos are now focusing their marketing effort on this market across the Courseway. Failure to capture this market means a heavy defeat. Genting RWS currently is leading the race. In essence, past results of Genting Highland casino (in Malaysia) would provide some clue to how big this pie can grow to.

* Asset management & rich migrants. If the Singapore Stock Exchange and financial sector are successful in building a large enough asset management hub in the region, more and more Asian riches will be attracted to this island state. Casinos will do well and VIP gaming will take off.

* Construction sector must remain robust in this place, be it public projects or private property sector. The Lion City is more of an Import nation rather than export-driven economy. Casino’s fate is pegged with construction boom (or doom). The two best examples are Las Vegas and Macau.

* It is envisaged that Singapore locals $ contribution to the IR casinos will be capped (e.g. up entrance fees, limits on trip frequency etc.) at approximately 1/3, to contain social problems caused by casino gambling. So the two casinos will have to go in deep for the Malaysian market next door (same as what Macau does, on Guangdong province) which could contribute 50% of total casino revenue growth. Other overseas contributors are Indonesia, Thailand and Vietnam for the time being.

* For the Singapore IR casinos to grow the pie, inevitably they must look at East Asia – mainland China, Taiwan and Korea.

In conclusion, the next two quarters results (of MBS & RWS) may surprise analysts.

Casino fighting heavily for Malaysian market

Happy outcome OR big surprise for investors?

How big this pie?

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Comments
  1. Margaret E Murphy says:

    Interesting insight…thanks

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