Genting Singapore Stock: Worth How Much?

Posted: May 26, 2011 in Uncategorized

Genting Singapore Stock – Worth How Much?

26 May 2011

Commentary by:  Alex Khoo

Finally it was on the news report. Analysts suddenly realized that this piece of Genting stock is after all, not as rosy as they predicted last year.

But why?

Analysts now saw something not in line with their overly exciting projections. What is apparently missing from the big picture is the Junket Operation. From the beginning, everyone thought that there’s huge mass market volume readily available to be tapped by Integrated Resort casinos. They had forgotten that even in the early days of Genting Highlands monopoly in Southeast Asian casino landscape, the market size wasn’t that fantastic. It is now evident that this piece of mass market clearly belongs to the “Low mass” segment mainly from Singapore, Malaysia and some from Indonesia. Direct premium market has been overly projected too, misguided by Adelson’s promise of “five 747 plane-loads of VIP players coming soon…”.

Observing the last few quarters of performance from Marina Bay Sands (MBS) and Resorts World Sentosa (RWS), one investment fund analyst gave his plain view about this market: “Looks like it’s time to be realistic and accept the limitations of this market… without Junket coming in, forget about any hope of boosting casino revenues by leap & bound.”

In summary, RWS Genting (or rather Genting Singapore) is confronted with the following situation,

(1)  Mass market segment isn’t going to grow very much in the steady state.

(2)  More control measures for locals entry into casinos may be introduced.

(3)  After three years of IR casinos in operation, the government may review the tax regime upwards. It’s too low for the jurisdiction and the two operators are laughing to the bank.

(4)  MICE (convention etc.) and hospitality businesses in the IRs are not promising, hence it is not going to be like Las Vegas where non-gaming revenues are major portion of the strip.

(5)  Macau has started to gradually improve on its gaming & non-gaming businesses setting, with MGM and Wynn in for a fresh round of Asian IPOs. liquidity of cash and debt-funding for Macau casinos remain strong. Lately, it is observed that traffic from Singapore to Macau has resumed to normal level as from April 2011, after many months of slump when the IR opened.

(6)  Genting RWS has to continue with over-credit to VIP players (including some pseudo-junkets) in order to sustain casino topline turnover. And hopes that the win % for VIP gaming could be maintained at reasonable levels to off-set huge credit risk exposure. One of the outcomes will be downsize of Ebitda margins to cope with high costs nature of this VIP business that is now exceeding 60% of total casino revenue.

MBS is on a different perspective though. Adelson seems to prefer long-term growth of direct premium business and his pride for convention arena. However, he needs to be very patient about this vision.

The $1b question remains, WHEN the authority is willing to open up (i.e. issue licenses) for Junket operation into IR casinos? There’s this scenario being talked about among observers, that the jurisdiction may initially open up to Southeast Asian junkets and monitor the situation accordingly. Hong Kong & China based junkets are considered of higher operational risks to be introduced/allowed into Singapore. Without the size and network of Hong Kong/China based junket syndicated groups coming into IR arena, the two casinos in Singapore IR can hardly move up to the next level of big-boys’ game.

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