Inside Asian Gaming

October 2009 | INSIDE ASIAN GAMING Market divide Singapore and Australia 39 Singapore A ustralia has a population of 20 million vs. Singapore at 4 million. But Singapore receives 10 million visitors per year vs. Australia at 5.5 million. The GDP per capita is higher in Australia at US$47,500 vs. US$38,000. The propensity to gamble is high in both countries, but we believe it is potentially higher in Singapore for cultural reasons. Let’s determine whether our casino gaming revenue forecast is reasonable for Singapore vs. Australia. We have excluded VIP from our calculations. Firstly, we expect US$1.92billion inmassmarket gaming revenues for Singapore vs. US$2.1b in Australia. However, we also need to consider the huge pokie market in Australia (slot machines located in pubs and clubs), which would add an additional US$9 billion in revenues resulting in a mass market gaming market of nearly US$12 billion in Australia. We have excluded lottery and sports betting for both countries. Blue sky assumption: Singapore mass market to be 50% of the Australian casino/pokie market, i.e. US$5.8 billion. This would boost our Genting Singapore revenue and earnings assumptions by 106- 158% and our price target by 177%. W e arrive at our US$3.2 billion forecast using a bottom up approach. See the table below for a breakdown by segment. We now want to test whether there is upside or downside risk to our assumptions. In nearly all cases, we see upside risk. A part of this process is that we estimate the number of annual and daily visitors to the casino. As highlighted in the below table, we expect 13 million visitors per year, or 35,000 on a daily basis for both Singapore casinos. This compares to 33,000 for Genting Highlands and 35,000 for Venetian Macau—for Venetian Macau, we have assumed that only half of the 70,000 visitors will play at the tables, which according to more recent discussions with other gaming industry personnel could be a gross under-estimation, with some saying that between 85-90% of people through the door actually gamble. To expect that both casinos in Singapore will see the same as one in Macau or one in Malaysia is conservative, in our view. If Genting Highlands sees 33,000, then 60,000 for Singapore would not appear unreasonable, in our view. Casino revenue by type of player No. of visitors at each casino / resort Source: CLSA Asia-Pacific Markets L et us now turn to the individual segments starting with the local Singaporean market, which we forecast to be US$845 million (Singaporeans and foreign residents). Is this a big number? Not really, as we estimate the current net win for the Singapore gaming market including lottery and sports betting is in the region of S$3.5 billion. This highlights how large the gaming market already is in Singapore. We can also look to other markets—we believe the best comparable would be Melbourne (which coincidentally is also my home town) because both cities have a population of 4 million and they are two rare examples where there is a“significant”casino in the middle of the town centre. By“significant”, we mean number of tables and major non-gaming elements such as hotel, restaurants and retail to draw in a high number of visitors. The one casino, Crown, generates gaming revenues of US$1.3 Singaporean local market (26% of total) billion per year. Around 30% is VIP, which we will assume is all overseas visitors; but assume the 70% mass market is all local play, at US$900 million. This implies that the local gaming revenues in Singapore are 11% belowMelbourne—whenmost peoplewould agree that the appetite to gamble in most Asian countries will be higher than western cities. Also, Melbourne has a huge gaming market outside the casino— in the form of suburban 24-hour slot machine clubs (known as pokie clubs). These clubs generate an additional US$2 billion in gaming revenues per year. Therefore, the Singapore gaming market would be 72% less than Melbourne. Blue sky assumption: Assume Singapore casinos generate 50% of Melbourne gaming revenues at US$1.5 billion vs. US$715 million. This would boost our Genting Singapore revenue and earnings assumptions by 16-21% and our price target by 26%.