Locals drive growth, but for how long?

    Singapore welcome

    Singapore’s two integrated resorts surprised analysts with the strength of their most recent results, despite higher entry fees for locals and a lack of international travel. 

    Results at both Marina Bay Sands and Genting Singapore beat expectations, both turning in a profit in the quarter. Marina Bay Sands recorded adjusted property EBITDA of $70 million, while Genting posted a net profit of S$54 million.

    It’s an impressive performance for a market which relies heavily on international travel and where the entry fee for the local market was raised by 50 percent last year. 

    Genting didn’t go into much detail as to the reasons for its strong performance, but analysts said they think the primary driver was pent-up local demand following the reopening of casinos on July 1st. 

    Morning Star analyst Jennifer Song said that government subsidies and cost cutting efforts are also likely to have helped to improve margins, with Genting’s EBITDA margin coming in at 53 percent in Q3, compared with 48 percent a year ago.  

    “From management of some major Macau casino operators, we can see that at the beginning stage of casino or border openings, the high quality and frequent patrons will likely come back first, and we think Singapore casinos are likely the same. So we think the strong recovery may also be led by the premium local customers.”

    Nomura was also surprised by the resilience of the Singapore market, which in the past few years has taken a back seat in terms of interest to some of its faster growing neighbours. 

    “At least some of the beat was due to reasons such as a pent-up demand after re-opening in July, hotel revenues for travellers serving Stay-Home Notice (quarantine) and Singapore’s Job Support Scheme,” analyst Tushar Mohata said. 

    “That said, we are still positively surprised by the extent of the recovery in gaming revenue (only down 41 percent y-y) as that it is solely coming from local residents and is subject to capacity restrictions,” he said, referring to Genting. 

    “ Much of the local demand is in the premium slots business.”

    “Based on the trends reported by competitor Marina Bay Sands (MBS), we estimate that VIP roll is still down ~80 percent y-y, whereas mass table drop / slot handle are down 40 percent /20 percent y-y (VIP is more tourist driven).”

    Much of the local demand is in the premium slots business. Las Vegas Sands’ management explained that the market is not so much local, as made up of expatriate residents. This clientele has favoured the premium slot business over tables, unlike the local market in Macau. 

    “Premium slots seem to be stronger, a trend seen in Marina Bay Sands which actually did report detailed gaming statistics,” Nomura’s Mohata said. “This is because even though social distancing needs to be followed, the casinos have some degree of flexibility in spacing out the slots over a larger area and use most of them, given demand for VIP and mass tables is lower. So within the allocated space for the casinos, there is some room to rejig the layout.”

    Despite the outperformance in the most recent quarter, analysts and management alike said that for a full recovery, tourists need to return. The level of local demand also is unlikely to be sustainable longer term.

    For 2019, the local market made up about 25 to 30 percent of demand for Genting Singapore, while gaming revenue has already returned to 59 percent of pre-pandemic levels, Song said. 

    “While we doubt whether the pent up local demand will be sustained or not, we think breakthroughs in the Covid-19 vaccine development and expanding travel bubbles with Asian countries should help lift volumes going forward.

    The Singapore and Hong Kong governments had agreed a travel bubble. International flights had been scheduled to resume on Nov. 22, though that arrangement has now been delayed due to another spike in Hong Kong cases. 

    To further stimulate domestic demand, Resorts World Sentosa has been rolling out staycation packages and events such as the Aqua Gastronomy Experience. Visitors get to taste sustainably sourced seafood in an underwater setting in its aquarium. 

    Looking ahead, both operators have said they remain committed to their S$4.5 billion expansion plans in Singapore, which analysts say is necessary to keep drawing in the visitors in the face of increasing competition from other regional jurisdictions. 

    Las Vegas Sands Chairman Sheldon Adelson, however, told investors that the plans are likely to be delayed due to the pandemic. 

    “In addition to the expansion, we will continue to reinvest in Marina Bay Sands to enhance the customer experience and the tourism appeal of the resort,” he said. 

    LVS has abandoned its ambition to build a resort in Japan, though Genting says it’s still on the agenda. It’s “keenly” exploring an opportunity in Yokohama. 

    “We will evaluate the conditions of the Request-for-Proposal (RFP) and the investment environment when the formal bidding process begins and will respond with a proposal if these conditions meet the group’s investment criteria,” it said.

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