China headwinds are buffeting Singapore’s VIP sector and have begun to tell on Resorts World Sentosa, where gaming revenue fell 21% year on year in the third quarter and sent parent Genting Singapore’s profit plummeting 43% to its lowest in four years.
Net income for the SGX-listed operator (G13.SI/GENS) was reported at S$127.1 million (US$98 million) for the July-September period. Only the three months through December 2010, when the company reported a S$150.3 million loss, were worse.
Adjusted EB ITDA was down 27% to $253.9 million—well below the $315.6 million average forecasted by analysts polled by Reuters—on total revenue that was down 17% to $644.8 million.
Bad luck at the high end was a significant factor. VIP win rate was 2%, 100 basis points off the 3% benchmark, suggesting that revenue from the sector may have been down as much as 40% year on year and negating the fact that Sentosa captured the greater share of VIP volume during the quarter (61% versus Marina Bay Sands’ 39%).
But there are larger cyclic issues which the quarter brought to the fore.
“Growth in Singapore gaming revenue has stalled … with macroeconomic and political factors in China being the principal cause,” Fitch Ratings wrote in an October report.
VIP accounts for about half of the combined annual gaming revenues of Sentosa and downtown rival MBS, and around half of that play comes from China, which is in the midst of an economic slowdown and an aggressive crackdown on high-level corruption that is discouraging conspicuous consumption and making it harder for wealthy Chinese to take money out of the country. Visitors from China were down 30% in the first half, according to the Singapore Tourism Board.
“The Asian gaming and tourism industry is experiencing significant challenges in the face of economic slowdown in our major visitor markets and other environmental factors,” GENS, which is controlled by Malaysia’s Genting conglomerate, said in a statement accompanying the earnings release.
Last month, MBS owner Las Vegas Sands reported a 34% decline in VIP volume at the resort in the July-September quarter. Sentosa’s VIP volume was down 12% in the same period.
“Like in Macau, we are not expecting a material change in VIP trends in Singapore over the near term, although there are some signs of life with respect to SE Asian VIP customers (i.e. Indonesians and Malaysians),” said investment brokerage Union Gaming Research Macau.
Both resorts are challenged as well by the Singapore government’s hostility to the junkets that drive Macau’s world-leading high end, a position that forces the casinos to recruit and comp the play largely on their own and burdens them with credit extension and collection.
On the plus side, Sentosa’s revenue from mass-market tables and slots was up 10% to $450 million during the quarter, and analysts expect the planned addition of 550 hotel rooms, which will bring RWS up to 2,150, to generate more lift on the mass side. The hotel ran at 95% occupancy during the quarter, with an average daily room rate of S$408. GENS said also that daily visits to Sentosa’s non-gaming attractions are up 10% on average.
UGRM is forecasting 7% mass revenue growth in 2015.
