Chitchat Singapore's IRs Affected By Eleven Jinping's Anti-Corruption Wayang!

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SINGAPORE: In 2010, Singapore’s two casino resorts opened to great fanfare and massive success, but the city-state’s gaming market is facing unprecedented challenges – from a corruption crackdown in China that is deterring high-rollers, to Asian rivals keen to grab a share of the lucrative market.

The Las Vegas Sands-run Marina Bay Sands (MBS) has seen revenue decline on a year-on-year basis for the last five quarters, while the losing streak has gone on for the last seven quarters for its cross-town rival, Genting Singapore’s Resorts World Sentosa (RWS).


"The reality is that the same factors impacting Macau – namely the anti-corruption drive and a slowing Chinese economy – are also impacting Singapore. In addition, currency weakness from Indonesia and Malaysia relative to the Singapore dollar is a contributing factor," said Mr Grant Govertsen, an analyst at Union Gaming Group.

China’s anti-corruption drive, initiated by President Xi Jinping, is entering its third year. The crackdown, which is targeted at officials who siphon money out of the mainland, has severely impacted Macau, the only place in China where casinos are legal.



Happier times: Genting group chairman Lim Kok Thay (centre, wearing suit) poses with his family after the opening of Singapore's first casino, the Resorts World Sentosa complex, on February 14, 2010. (Photo: AFP/Roslan Rahman)

Gross gaming revenue from VIPs – defined as gamblers who deposit more than S$100,000 with the casino – contracted by about 30 per cent year-on-year in 2015 across the two integrated resorts, said Ms Jessalynn Chen, an analyst at CIMB. And this fall out has been more pronounced at RWS because it has tended to be more reliant on Chinese VIP customers.

According to Ms Chen, RWS “has taken a hit from the anti-corruption drive both in terms of lower VIP rolling chip volume and also higher bad debt charges”. Meanwhile, MBS is supported by its strength in the mass gaming segment, which is predominantly made up of Southeast Asian customers. This is due to its central location and iconic building, which is a tourist attraction in itself, she said.

PROFITABILITY HIT BY RETREAT OF HIGH ROLLERS

In the most recent financial quarter, MBS reported an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) margin of 45.5 per cent, versus RWS’ 33.1 per cent. A higher EBITDA margin – derived by dividing EBITDA by total revenue – reflects a more profitable operation.

Mr Gabriel Yap, executive chairman at investment firm GCP Global, blamed RWS’ relatively poorer performance on its bet on VIP gamblers. With the ongoing anti-corruption drive in China and a slowing Chinese economy, many high-stakes gamblers have stopped coming. And even among those who do come, the casino operators are struggling to get all of them to pay up.

“They have been focusing more on the high rollers, and that’s what got them into dire straits – the provisions (for bad debts). They have had to write off S$200 million worth of bad debts over the last 12 quarters,” he said.

These bad debts are partly the result of strict government regulations regarding junkets, which prohibit junket operators who bring in VIPs from lending them money to gamble. The casinos, as a result, have to bear the risk of lending to its own customers.



The EBITDA margin, a measure of profitability, for MBS and RWS. (Source: Company filings; Graphic: Linette Lim)

With the mass gaming segment generating higher EBITDA margins than the VIP segment, RWS had already begun to follow in the footsteps of its rival and shift its focus to the mass market. With the change in approach, Ms Chen expects margins for the Malaysian-controlled casino to improve from the second half of this year.

About 69 per cent of Singapore’s casino gaming revenue comes from the mass-market, versus only 46 per cent for Macau, according to a Bloomberg Intelligence report dated May 19. For RWS alone, this proportion has trended up to 59 per cent in the first quarter of 2016, from just 37 per cent in 2014.

Although the EBITDA margins for Singapore’s gaming duopoly are still higher than those in Las Vegas and Macau casinos, MBS and RWS are facing increasing competition from regional upstarts.

Since the Government legalised casino gambling 10 years ago and pushed through a plan to build the two integrated resorts, the authorities in neighbouring countries – South Korea, Vietnam, Cambodia, and the Philippines – have relaxed gambling regimes to allow similar large-scale integrated resorts to be built.



Visitors trying out gambling machines during a trade exhibition in Manila, Philippines. (AFP/File - Romeo Gacad)

DID THE GAMBLE PAY OFF?

But even as competition intensifies against a backdrop of challenging conditions, the casinos in Singapore are seen to have been a success.

“The integrated resorts were never intended to make Singapore into a casino destination; their strategic purpose was to complement Singapore’s total tourism profile,” Mr Jonathan Galaviz, a partner at Global Market Advisors told Channel NewsAsia.

“Therefore, casino revenues should not be the sole litmus test for whether the integrated resorts are losing their luster.”

On the part of the two casino operators, the integrated resorts appear to have been a gamble that has paid off.

“If you add up the historical EBITDA numbers from 2010 to 2015 – at more than S$1 billion a year – both entities would have covered (the initial investment cost),” said Ms Chen. Including land cost, the initial investment cost came up to about S$7.7 billion for MBS, and S$6.6 billion for RWS.

As for the Singapore Government, it was revealed in a parliamentary exchange last year that the two integrated resorts have contributed between 1.5 and 2 per cent of Singapore’s GDP, and created more than 20,000 jobs.

These numbers will be of interest to regional competitors – including Japan, which is still sitting on a bill to legalise casinos – that are keen to demonstrate to their electorate that the economic benefits of gaming outweigh the potential downsides, like addiction and organised crime.

REVERSING THE DECLINE

Currently, gaming accounts for three-quarters of revenue for both MBS and RWS.

Both have been working to offset declining gaming revenue with income from non-gaming sources – including earnings from their hotel, retail, and convention operations.

But Mr Yap says there are limits to this strategy, as the growing receipts from food and beverage, and retail are still "not enough to offset the more lucrative gaming segment.”


Full article at http://www.channelnewsasia.com/news/....html?cid=FBia


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