A 50% increase in the entry levy to be imposed on locals entering Singapore’s two integrated resorts will hurt Genting Singapore’s short-term bottom line, according to analysts, including a potential 15% fall in gross gaming revenue in 2019.
The predictions follow the news yesterday that Genting Singapore and Las Vegas Sands would invest another US$4.5 billion each into expansion of their respective IRs – Resorts World Sentosa (RWS) and Marina Bay Sands (MBS) – after reaching an agreement with the Singapore Tourism Board.
While both operators will enjoy greater capacity and an extension to their exclusivity periods through 2030, they will also have to pay 3% more gaming tax from 2022. More importantly, entry levies have been immediately increased from SG$100 to SG$150 per 24-hour period and from SG$2,000 to SG$3,000 annually.
Analysts were quick to crunch the numbers on Thursday, with the general consensus being that the higher levies would prove a worryingly heavy burden on both operators in the coming years.
Pointing specifically to RWS, Union Gaming’s Grant Govertsen stated, “While we believe [the levy increase] is misguided and more likely to exacerbate problem gaming, it will most certainly have a negative impact on casual local mass market customers.
“We are now modeling a 15% decline in mass GGR for RWS over the next 12 months. As an aside, the notably higher entry levies can be viewed as an unexpected gift to regional properties (Cambodia, Macau, Malaysia, Vietnam) as the magnitude of the daily entry levy can be translated into round-trip LCC airfare elsewhere.”
JP Morgan’s DS Kim described Genting Singapore’s expansion plans as coming with a “hefty price tag”, including an “unnecessary large-scale investment” and “unwanted regulatory changes.”
“Increases in entry fee and gaming tax will hurt P&L, and it is just a matter of ‘how negative’ they will be,” he added. “We estimate the hikes in entry fee and gaming tax to impact EBITDA by about 4% and 6%, respectively, from 2Q19 and Mar-2022. We see this as negative on balance.”
Morgan Stanley analysts Praveen Choudhary and Jeremy An noted that the Singapore government was the clear winner in the new agreement while estimating that around 10% of locals, who comprise 25% of Singapore’s IR business, will either stay away or gamble less as a result of the levy increase.
However, the consensus is that MBS will be able to better absorb the huge costs of the coming expansion projects and associated fee and tax increases due to its size and greater capacity to add new gaming space. Under the agreement, MBS will add an additional 2,000 square meters of gaming space and 1,000 new gaming machines compared with just 500 square meters of gaming space and 800 gaming machines at RWS.
Morgan Stanley suggests that, in the long-term, the expansion of both properties will ultimately see RWS lose market share to MBS.
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