Inside Asian Gaming

INSIDE ASIAN GAMING | October 2009 Local and foreign VIP market (40% of total) 40 W e only expect the Malaysian day-trip market to contribute US$148 million, or around 5% of total gaming revenues for Singapore. (Note that this excludes our estimates for Malaysians that arrive by air, who would add a further US$100 million or 3% to our forecasts). We have calculated this on the basis of 3 million visitors multiplied by an average spend of US$50 per visit = US$148 million. Firstly, we believe our visitor arrivals assumptions are low if we consider that there are 16 million Malaysian trips to Genting Highlands each year. We already know that there are around 9 million visits from Malaysians across the border each year—while a large chunk will be workers, there will also be a substantial increase once the integrated resorts open. We understand that the maximum capacity of the two bridges is 36 million per year, or 100,000 per day, so the infrastructure can support a huge increase in day-trippers. We believe that the majority of these visits will be day-trip, as the majority will not be keen to book a room at these resorts, which will cost around S$260 (US$185) per night (vs. only US$20 at Genting). However, we believe Genting will leverage their bussing expertise from the Genting Highlands. Secondly, we very conservatively forecast that the average spend per visit will be US$50, which compares to US$62 at Genting Highlands. Logic would suggest that the average spend in Singapore would be higher as the average wealth of visitors to Singapore would also be higher. Blue sky assumptions: Assume Malaysian day-trippers are 40% of those visitors to Genting Highlands, i.e. 6.4 million; and average spend is US$80, i.e. a 30% premium to the average spend in Genting Highlands. This would boost our Genting Singapore revenue and earnings assumptions by 6-12% and our price target by 20%. Malaysian day trip market (5% of total) Foreign mass market (28% of total revenues) A few broad assumptions were made in this category, which boils down to 4 million visits with an average spend of US$200. Because of the unique Singapore market in this sense, it is hard to find an anchor for this forecast. We could look at Macau and say that there were 22million visitors in 2008 and assume that 50% play at the casino, which results in 11 million foreign players per year. This compares to Las Vegas—where they were 37.5 million visitors last year, with 85% of respondents to a survey mentioning they will gamble while visiting Vegas. We didn’t receive much pushback from investors on our estimates, with many agreeing that the Indonesia market promises to be fairly large. Also, many Indian clients we met in Singapore argued that the Indian market will be huge—given the proximity of Singapore; the number of flights per day; the rising affluence; the appetite for gaming (although many argued that the average spend would be low vs. Chinese); and the lure of Universal Studios. Blue sky assumptions: none for this category. W e reckon this category is a tough one to forecast, which is why we believe we are extra conservative. The big unknown will be how the junket operators will be regulated in Singapore. We understand that even the companies are still discussing the framework with regulators. On one hand, we could assume that the Singapore government will be extra cautious to ensure that any companies without the best corporate governance track record will not be allowed to operate in Singapore. However, we take the view that the Singapore government is fully invested in the success of the integrated resorts; and they would prefer the success to come at the expense of “unlucky” foreign VIP tourists vs. low income Singaporeans—the latter would create worse press. We do not think Singapore will take huge market share from Macau. It has to be “some” because around 6% of tourist arrivals into Macau now are from Southeast Asia. It would be reasonable to assume that maybe 25% of these visitors will divert to Singapore— just like some SE Asians will stop flying down to Australia. We do not see a huge number of Guangdong day-visitors to Singapore