Inside Asian Gaming

INSIDE ASIAN GAMING | October 2009 38 Singapore W e spent two weeks speaking to investors about our recent initiation report on Genting Singapore called Handful of Aces [an extract from which was published in the last issue of Inside AsianGaming ]. Our estimates are well above consensus—we are forecasting gaming revenues of US$3.2 billion in 2010 (assuming a full year basis). We understand this is 30-50% above other brokers’ estimates. Also, our Genting Singapore earnings assumptions are 75- 165% above consensus. This, therefore, led to a healthy debate with investors about our detailed assumptions. At the end of the marketing, we came away feeling that not only were our estimates very robust, but there is potentially quite significant upside to our already bullish forecasts. Big Bucks In an update to investment bank CLSA’s view on the upcoming Singapore casino gaming market, Aaron Fischer, Jon Oh and Huei Suen Ng stand behind their aggressive forecasts, adding that, if anything, there may be cause for even greater optimism S tarting with the top down estimates—our gaming revenues numbers of $3.2 billion are only 23% of the Macau gaming revenues. Or in other words, Macau is expected to be four times greater than Singapore. Does this make sense? We think it is conservative. Macau has a major advantage over Singapore because of the proximity to China and Hong Kong—this is a huge potential market; which in fact, is not fully tapped. There are still quite strict visa restrictions for mainlanders. In addition, we understand that close to 75% of the Chinese entering Macau are actually from the Guangdong/South China region. People from Hong Kong still need to travel one hour to Macau and door to door (home/work to casino) is probably closer to 90-120 minutes. If all Chinese were free to travel into Macau on an unlimited basis and the currency was freely convertible, Macau gaming revenues could be a high multiple of where they are today. Singapore doesn’t have China, but it does have another huge “nearby”market, comprising of Indonesia, Thailand and Malaysia. Gaming spend by Macanese is estimated to be quite low, at less than 5% of total gaming revenues. Whereas we believe the locals market in Singapore can be quite material at around 40% of total (22% mass, 18% VIP). We understand that the gamingmix will be different in Singapore vs. Macau, with a higher weighting to the higher win rate non- Baccarat games such as roulette, black jack etc. Lastly, Singaporewill attract a huge number of longer haul visitors from places like India, Europe, North America and Australia/NZ that would not consider Macau as a holiday or gaming destination. As a reminder, we have previously highlighted our view that we do not believe Singapore will take significant market share from Macau—given that most visitors to Macau are from Hong Kong or just over the border in China, so for convenience and cultural reasons, these players will keep Macau as their primary gaming destination. Of course, there is scope to tap into the mainland market via offering higher junket commissions, but this does not form a material part of our overall gaming revenue estimates. Blue sky assumption # 1: Singapore to be one third of Macau at US$4.7 billion vs. currently at US$3.2 billion. This would boost our Genting Singapore revenue and earnings assumptions by 36-39%, and our price target by 47%. Blue sky assumption # 2: Singapore to be half of Macau at US$7.1 billion vs. currently at US$3.2 billion. This would boost our Genting Singapore revenue and earnings assumptions by 95-115% and our price target by 124%. Singapore and Macau