Special from Inside Asian Gaming magazineOn February14, Valentine’s Day, the casino at Genting Group’s $4.7 billion Resorts World Sentosa (RWS)-the first of Singapore’s two casino-centered integrated resorts (IRs) to open-celebrated its second birthday.
In some ways, it has already seen better days, at least when it comes to gaming revenue.
While mass-market gamblers are still very much in love with the casino at RWS, it appears the better heeled among them, as well as high rollers, have started to gravitate towards the city-state’s second IR, Las Vegas Sands Corp’s (LVS’s) Marina Bay Sands (MBS). Although local sources suggest significantly higher casino visitor numbers at RWS than at MBS, MBS’s share of total Singapore gaming revenue overtook that of RWS in the second quarter of last year. The inference is players at MBS are betting significantly more on average than their counterparts at RWS.
Up until the first quarter of 2011, the casino at RWS comfortably out-grossed that at MBS. Among the factors in RWS’s favor were its two-and-a-half month headstart and the considerable competitive insights and advantages Genting gained from operating a monopoly casino property in Malaysia since 1970, including an intimate familiarity with the wants and needs of players from Malaysia and Singapore and an extensive base of customers- many of whom belong to its loyalty card program-in the region. Genting also benefited from some of LVS’s rookie mistakes in the Singapore market, the most notable of which was trying to replicate the games mix at its Macau properties. Unlike Macau, where baccarat is pre-eminent, in Malaysia and Singapore, roulette reigns supreme, and the MBS main floor had initially devoted too much precious floor space to the former game and too little to the latter. Since the casino areas at the IRs are limited to a maximum 5 percent of the properties’ total floor space, determining the optimal mix of games on the floor is particularly important.
In the second quarter of last year, gaming revenues at RWS plunged 27.4 percent quarter-on-quarter, while those at MBS continued their steady increase. MBS maintained the gaming revenue lead into the third quarter and by all accounts the fourth quarter as well. Genting Singapore attributed the large dip in the second quarter of 2011 revenue to lower win percentages in its premium players segment. Although gaming revenue at RWS bounced back in the third quarter of 2011 as win percentages normalized, Genting Singapore’s earnings in the quarter were held back by a large increase in bad debt provisions related to its VIP gaming business.
In what Genting Singapore called a prudent move in the face of a slowing global economy and tightening credit conditions in China, the company raised its bad debt provisions to S$56.9 million for the third quarter of 2011, up from S$23.5 million in the same quarter of 2010 (S$1 = US$ 0.78). Genting Singapore’s higher bad debt provisions figure equates to 8.5 percent of its gaming revenue, according to Citigroup, and compares to provisions equivalent to an average of 3 percent of gaming revenue over the past six quarters. Macquarie Equities Research analysts Gary Pinge, Elaine Lai and Somesh Kumar Agarwal noted that the increase in provisions for RWS is “is in contrast to Marina Bay Sands, which has not shown higher provisioning, so we wonder if Genting Singapore’s decision was driven by its aggressive credit extension that was seen in the first half of the year.”
The Macquarie analysts added that Genting Singapore’s loss of VIP market share was “driven by a lack of competitive product relative to MBS,” and predicted the scheduled opening of the Bayfront MRT station near the swankier downtown MBS would also shift more mass-market players away from RWS. The analysts further pointed out that in addition to Genting Singapore’s loss of gaming market share in the third quarter, it also did not see much improvement in its non-gaming business.
POSITIVE OUTLOOKNot all analysts have a downbeat view on RWS, however. DBS Vickers Research predicts RWS should start catching up soon on the back of a ramp up in slot operations (+33 percent to 2,470 machines by end-2011, comparable with MBS); higher visitor arrivals with world’s first Transformers ride (launched in December last year) and potential spin-off from Genting Plantation’s Johor Premium Outlets; and the opening of Western Zone, a project comprised of a Maritime Museum, 200-room Equarius Hotel with 20 beach villas to attract higher-end VIPs, and Marine Life Park & Equarius Water Park.
DBS Vickers Research adds: “While MBS is closer to the CBD [central business district] and stands to benefit from completion of the Circle Line and International Cruise Terminal in the first half of 2012, RWS can leverage on its theme parks and Genting Group’s 40-years’ experience in ASEAN (extensive customer database, good relationships with junkets).”
Meanwhile, leading regional financial group CIMB (which operates in the ASEAN countries), believes RWS has yet to reach its full potential, with the completion of further rooms and attractions likely to provide further impetus for growth. According to CIMB, “Marketing programs for RWS will likely be more restrained until its accommodation constraints are relieved and the West Zone is completed, which we expect in the second half of 2012.
The marketing team will then have more complete products to market.
“As such, we believe RWS has yet to reach its full potential, with sufficient accommodation, more complete product offerings and a boost from the company’s marketing efforts,” CIMB reported. “It is arguably difficult to quantify the boost to gaming demand and earnings from these new non-gaming amenities. But even more comprehensive integrated resort offerings should help draw in more visitors, which in turn could translate into higher casino patronage and gaming revenue.
A RISING TIDE...While the two IRs will continue their tussle for market share dominance, the consensus view is the pie as a whole will continue to get bigger. Singapore’s gross gaming revenue is forecast to grow from around $6 billion in 2011 to a range between $6.6 billion (according to CLSA Asia-Pacific Markets) and $7 billion (according to DBS Vickers Research) in 2012.
DBS Vickers Research notes its forecast does not include the potential impact of junkets, explaining “While junkets could lead to potential cannibalization of the direct VIP segment and lower margins due to commissions, these should be mitigated by stronger volume growth and lower receivable provision/ impairment.”
Both IRs will also continue contributing to Singapore’s tourism growth. In 2010, the year the IRs opened, Singapore’s visitor arrivals rose 20 percent year-on-year to a record 11.6 million, reversing declines of 4 percent and 2 percent, respectively, in 2009 and 2008. Visitor expenditures rose 49 percent in 2010. “Perhaps 25 percent of tourism growth is from the IRs,” HSBC senior gaming and consumer analyst Sean Monaghan estimates.
Tourism data for 2011 show additional rises of 13 percent for arrivals to 13.2 million and 17 percent for expenditures to S$22.2 billion. Revenue from the sightseeing and entertainment sectors, which includes gambling, soared 37 percent to S$5.5 billion. The growing visitor numbers also underlie the double-digit increase in hotel rates and average revenues despite some 4,000 rooms being added to supply.
Notably, Singapore’s tourism figures do not include arrivals via its land border with
Malaysia, which likely grew by much more, with Malaysians constituting the largest group of non-local players at the IR casinos.
Mainland Chinese players are also prominent in the mix. Following the opening of the IRs, the number of mainland Chinese visitors descending upon Singapore has spiked. In 2010, the number of mainland Chinese visitors to Singapore jumped 25 percent to 1.17 million, reversing a 13.2 percent decline in 2009. In 2011, the number of mainland Chinese visitors soared 34.7 percent further to 1.58 million. Mainland Chinese now constitute the second biggest group of visitors to Singapore after Indonesians, who numbered 2.59 million in 2011 (a 12.4 percent year-on-year increase).
Information for this article and the Macau sidebar was reprinted and excerpted with permission from Inside Asian Gaming magazine. Editing and additional reporting was provided by Paul Doocey.
SIDEBAR: Macau preps for G2E Asia, potential fallout from transitioning national governmentThe enclave of Macau will once again play host to Global Gaming Expo Asia (G2E Asia), which will take place May 22-24 at the Cotai Strip CotaiExpo at the Venetian Macau. The conference and trade show is expected to attract upwards of 6,000 gaming professional and the show floor will offer the latest products from a long list of vendors including Ainsworth, Alfastreet, Aruze, Gaming Laboratories International, Hydako, Konami and Shuffle Master. For more information on the G2E Asia, visit www.g2easia.com.
In many obvious ways, Macau is the perfect location for any show that attempts to examine the Asian gaming industry. As mentioned in G2E Asia support material, a recent report from PricewaterhouseCoopers referred to Macau as “the jewel in the crown on Asia Pacific’s casino gaming industry.” Last year, Macau’s gross gaming revenue rose 42 percent to $33.5 billion. Gaming revenue is forecast to grow more than 20 percent this year, aided by the opening of Sands Cotai Central, with 6,000 rooms and 300,000 square feet of gaming space. The resort will add critical mass to Cotai, Macau’s version of the Las Vegas Strip. Train service connecting Guangzhou and Macau is boosting visitor numbers from mainland China, and further additions to China’s national high speed rail network will accelerate arrivals from Beijing, Shanghai and the rest of the country. Construction already has begun on the bridge linking Hong Kong, Macau and Zhuhai that will further increase access from Macau’s two closest markets.
This is not to say Macau is without its thorns, the sharpest of which appears to be its ongoing uncertain relationship with the national government in Beijing. What the central government ‘wants’ in China generally and Macau in particular is not always clear, and is likely to remain somewhat hazy for the coming months and possibly years. That’s because China is entering a period of transition in national leadership. Reform-minded President Hu Jintao and Premier Wen Jiabao will soon retire after a decade at the helm. The fact that their tenures coincided with the ‘big bang’ of Macau gaming market liberalization was no accident.
Until the direction of the national leadership is clearly decided, it’s unlikely that the Macau government will do anything bold or decisive in terms of Macau gaming industry policy, for fear of alienating either of the central government factions currently competing for power. Even when a political succession is actually in place in China, it’s likely to take time for the ‘winners’ to consolidate their position, gradually easing out their opponents within the central government and promoting their own supporters. At the time of the last leadership succession in 2002, it took around two years for the new leadership to consolidate its hold on power, according to political analysts.
This doesn’t mean it will be two years before the Macau government feels comfortable about giving a construction start date for any more casino projects on Cotai. But it does suggest that were any of the three operators currently waiting on approval for new Cotai projects-MGM China, SJM and Wynn; as well as the one operator (Melco Crown Entertainment) waiting for confirmation of the previously stalled Studio City project-to start vigorously lobbying the Macau government on the topic, they may simply be addressing their concerns to the wrong people at the wrong moment.