Gaming Important Part Of IR Revenues

Source : The Business Times, June 25, 2009

It will make up big chunk of Sentosa's revenue, Marina Sands' Ebitda: CLSA

The casinos may be a small component of Singapore's integrated resorts (IRs) but both operators will be counting on gaming revenue for significant support.

A report by CLSA reveals that for Marina Bay Sands (MBS), gaming Ebitda for 2011-2012 is estimated at US$700-800 million - about 75 per cent of total Ebitda.

Money spinner: CLSA says Marina Bay Sands is still likely to generate the highest Ebitda of any LVS casino globally, contributing 40 per cent of LVS's group Ebitda

For Resorts World at Sentosa (RWS), gaming revenue is expected to contribute about 70 per cent of overall revenue. While no value figure was given, CLSA said that up to 40 per cent of this will come from locals.

Andrew Hartley, Singapore country head at CLSA, said: 'People assume the local market will be very quiet, which I think is wrong. Just look at the huge daily turnover in locally listed small-caps to see there are a lot of bored retirees out there just waiting for a chance to go and punt their pensions. Or go to Tanah Merah to see the families lined up to board the boats for a day of gaming on the high seas.'

How effective the $100 daily entry fee will be at deterring locals is unknown. However, CLSA believes - but cannot confirm - that the $2,000 annual entrance fee may allow unlimited access to both casinos.

'We believe the strength of the local market will surprise,' Mr Hartley said.

CLSA noted that in 2008, Las Vegas Sands (LVS), which owns MBS, provided guidance for MBS 2012 Ebitda (earnings before interest, tax, depreciation and amortisation) of US$1.2 billion. 'Understandably, the company is no longer maintaining that guidance, as the world is in a different place than where we were previously,' CLSA said.

However, MBS is still likely to generate the highest Ebitda of any LVS casino globally, with MBS contributing 40 per cent of LVS's group Ebitda.

For LVS, in particular, profit targets will need to be met. CLSA said: 'We understand that the debt covenants kick in after the first full four quarters. When opened, (LVS's) credit facility will not be completely drawn down with payments made in 2010 and MBS will be still paying out for capex until Q2 2011 - around US$500 million in 2011. By that point, management should be generating at least S$800 million in Ebitda or there may be some debt covenants issues.'

The report said that LVS management expects gaming revenue to be biased towards VIPs rather than the mass market, with around a 60-40 split.

RWS, which is owned by Genting Singapore, will also target VIP and mass market players. About 30 per cent of the gaming tables are expected to be reserved for KJ (key junket) VIP players. To this end, RWS has recruited high-roller marketing veteran Mabel Lee, formerly with casino operator Wynn, to drum up business.

There is likely be a core of 20 KJ operators used by RWS, with a strong focus to solicit patrons from Indonesia, China and India, CLSA said.

Junket operators are important to the gaming industry. In Macau, one of the primary roles of junkets is facilitation, as there are limits on the amount of renminbi that can be brought into Macau - 20,000 renminbi (S$4,300) and US$5,000 per visit, which is less than the average bet in a VIP room.

To qualify as a VIP player, players need to register and have a minimum buy-in of S$100,000.

RWS will also have Universal Studios Singapore as a revenue generator. CLSA said that the overall building cost of about S$1.5 billion for USS is considerably cheaper than that of the estimated US$2 billion Universal Studios in Japan. This is largely due to cheaper construction materials, it said. As such, the estimated entry price of S$80 per adult will be cheaper than that at Universal Studios Japan, Orlando and Hollywood.

CLSA also said that RWS 'is taking the meetings, incentives, conventions and exhibitions (Mice) business more seriously than we expected'. 'We understand management have booked 38 events with more than 500 people.'

Over at MBS, CLSA said that the first Mice event has been booked for April 1, 2010.

CLSA expects both IRs to open in early 2010.