Singapore: Profitability of IRs in doubt: Citi analyst

CAN the integrated resorts count on Singaporeans to gamble enough to make them profitable? Citi has doubts.

In a report on the prospects of Las Vegas Sands (LVS), which owns Marina Bay Sands (MBS) here, Citi said that assuming MBS contributes 20 per cent of LVS's total Ebitdar in its first full year, every eligible Singaporean will have to go to the casino five times a year and spend more then the average visitor to Macau.

Every visitor to Singapore will also have to visit once a year.

'We liken the current sentiment towards the integrated resort to the Macau gaming boom in 2006/07 and urge investors to not be left holding this parcel when the music stops,' added Citi analyst Anil Daswani.

Mr Daswani acknowledges that his forecast of 20 per cent Ebitdar from LVS's Singapore operations is about 30 per cent below consensus. But he also added: 'If current market estimates are believed, then the Marina Bay Sands will be the most profitable casino in the world in its first full year of operations despite Singapore being a fledgling gaming market.'

Singapore is an untested market as far as gaming goes. Whether Singapore leans towards the Las Vegas model (which counts on non-gaming revenue) or the Macau model (which relies on VIP gamers), will have a significant impact on revenue generators here, and ultimately, the success of the IRs.

Forecasts for gaming revenue at the IRs so far range between US$1-2 billion in the first year.

Based on Citi's analysis, to achieve US$1.56 billion in revenue each, both IRs will have to attract a combined total of 31 million visitors annually.

This implies that 3.2 million eligible Singaporeans (over 21 years) will have to visit either casino a total of five times. An additional 1.4 million visitors from Johor will have to visit either casino twice a year and 12.2 million tourists will have gone at least once with everybody betting and losing at least US$100.

However, there are downside risks to this projection.

Citi highlights that the US$100 discretionary spending is almost twice that typically spent at Genting Malaysia's casino (US$53) and higher than the average spending at LVS's Venetian Macau (US$84). 'This does not include the additional $100 entry levy that each Singaporean must pay when they enter the casino,' added Mr Daswani.

He also said that while the market is expecting Singapore IRs to achieve Net Wins Per Table in line with those achieved in Macau, 'we cannot justify these assumptions just as we cannot believe that Singapore in its first full year of operations will equate to 30-40 per cent of the market size of Macau in terms of gaming revenue or 70 per cent plus of the entire Las Vegas Strip'.

It is not just gaming that is at risk. Citi estimates that room rates at MBS will be around US$143 with occupancy at 78 per cent. However, it noted that there will be 18 per cent of new hotel room supply added to Singapore's total hotel room supply next year.

But its the $100 entrance fee that is a sticking point as it could prevent both casinos from developing strong and recurring local mass market customers. 'In Melbourne and Macau, a key dynamic of each market is that the local Australians and Chinese dominate their respective mass market division at the casinos. If Singapore wants more mass market type casinos to succeed, they will have to successfully attract the locals to gamble regularly,' said Mr Daswani.

At MBS, Citi expects 51 per cent of total gaming revenue to come from the mass market vs 42 per cent at Venetian Macau.

While Citi has focused on many downside risks, others have been more optimistic.

In a report last month, CIMB estimated that Singapore could have a casino market worth $5.1 billion.

Accepting that predicting market size is 'still hazy', CIMB nevertheless used a ratio of casino revenues-to-legal gambling market in Malaysia to gauge the relative market size of the casino market versus the non-casino gambling market. Applying this ratio to Singapore, and cognisant that this could underestimate the viable casino market, CIMB found that in 2008, Singapore's tax authorities collected $1.78 billion of taxes from gaming activities. Assuming a 20 per cent tax rate, the legal gaming market in Singapore is estimated to be about $8.9 billion, it said.

CIMB also pointed out that a recent study estimated that 58 per cent of the population in Singapore are gamblers and each gambled up to almost $3,300 per person. 'These data points support our estimation of a $9 billion gaming market size to tap', it concluded.


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