Genting Singapore could ramp up profits by 45 percent if it were to achieve the same EBITDA market share that it achieved in 2011, but such opportunities are unlikely to materialize, with Singapore’s GGR tipped to decline 4 percent in 2015, Morgan Stanley says.
Singapore's gaming market is structurally better than Macau's due to less reliance on junkets and Chinese VIP customers, lower tax, 30-year gaming licenses and a duopoly, wrote analysts Praveen Choudhary, Xin Jin Ling and Alex Poon in a note.
And if GENS were to achieve the same EBITDA market share that it achieved in 2011, the analysts’ 2015 EBITDA estimate would be 45 percent higher, taking into account the company’s net cash of S$1.4bn.
The analysts say the cash could pay back perpetual debt at an interest rate of 5.1 percent, which could save S$118m of additional interest expense, along with paying higher dividends and venture into overseas markets such Japan or Vietnam.
However, the analysts don’t think these opportunities will materialize in the near term as Singapore’s gaming industry faces numerous disappointments.
“We expect Singapore gross gaming revenue to decline 4 percent YoY in 2015 (in SGD terms), driven by declines in VIP volumes and a flat mass market.”
The upcoming extension of multiple-entry visas for Chinese tourists will drive visitation but not gaming revenue, since GENS remains cautious on extending credit, the analysts say. Also, bad debt provision could remain high at 19 percent of VIP revenue in 2015.
“We also do not expect Jurong hotel (opened in May 2015) to drive mass market since most of the guests are part of tour groups.”
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