Inside Asian Gaming

October 2009 | INSIDE ASIAN GAMING 41 Macau getting on a plane to Singapore. However, we believe that some Chinese will be lured down to Singapore for gaming—for a number of reasons: • a new alternative to Macau. Potentially that player from Beijing or Shanghai that was visiting Macau four times a year will divert one of those trips to Singapore; • 11% of all tourist arrivals into Singapore are from China (second after Indonesia at 18%). Therefore some of the tourists will find their way to the casinos; and • we believe Singapore will become a more exciting destination with both the casino and other activities such as Universal Studios and, of course, the world famous Night Safari. Maybe some Chinese tourists divert their holidays from Bali or Thailand or Hong Kong or Europe to Singapore. We estimate the foreign and local VIP market to be US$1.3 billion. This compares to the VIP market in Macau of US$9.5 billion. We still believe that there will be new pent-up demand, which accounts for a large share of the US$1.3 billion—but assuming there is no new demand, then Singapore is potentially taking just 14% market share from Macau. We have received some pushback from clients saying that all of Macau’s VIP market is money laundering and this will not make it down to Singapore due to potentially tougher disclosure procedures. Since we have been following Macau, we have not come across any evidence of money-laundering. But we do not want to be naive and pretend nothing illegal was ever to happen inMacau.We domaintain the view that money laundering would be quite expensive in Macau given the gaming tax of 39%. On the other hand, there is also another school of thought which suggests that the side betting market in Macau is huge (this is when the players and junket operators agree unofficially that the real bet is a significant multiple of the bet on the table, e.g. if the bet on the table is HK$100,000 it is really HK$1 million or say US$100,000). Some argue that if side-betting is included, then the real size of the Macau gaming market would be double what is currently reported, which would imply our forecasts for Singapore are more reasonable. Aside from Macau, these VIP players are mobile and are also visiting Las Vegas, Australia, etc. We estimated in our recent report that the Asian VIP market is worth around US$12 billion. Again US$1.3b is only 11% of the total. We could also compare the VIP market in Singapore to Australia. We believe the Australian Asian VIP market is around US$500 million. Given location and superior resort quality, we expect that Singapore would be comfortably above Australia. Management have not provided any guidance on the size of the overall gaming market or split of VIP to mass etc. However, Genting guided towards a table split of 250 VIP tables and 500 mass tables, i.e. 33/67% split. This compares to Macau, where the VIP tables are around 20% of total; yet total VIP revenues are 70% of total. This therefore implies our net win per VIP table is super low for Singapore at around US$6,233 per table per day vs. around US$20,000 in Macau. Blue sky assumptions: Assume that the Singapore net VIP per table is $13,000 per day (70% of Macau), or that the overall size of the market is US$2.5 billion (20%of the total AsianVIPmarket).Thiswould boost our Genting Singapore revenue and earnings assumptions by 15-30% and our price target by 18%. The lower boost to the price target is due to the lower-margin nature of the VIP business. Singapore