Fitch: Recovery from sharp contraction to provide respite for Genting S'pore in 2015

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KUALA LUMPUR (Oct 31): The sharp contraction in revenue from the mostly Chinese VIP clients in the second half of the year for Genting Singapore PLC's Resorts World Sentosa (RWS) and Marina Bay Sands (MBS) is only temporary, with the VIP numbers expected to improve and provide some respite for the duopoly in 2015, said Fitch Ratings.

However, whether the two casinos - who collectively control the Singapore casino market - will be able to tap into the Chinese recovery and its broader growth in the longer term remains to be seen, as they will face increased regional competition from new casinos in the Philippines, Macau and potentially, Japan, said the ratings agency in a statement yesterday.

"Growth in Singapore gaming revenue has stalled recently and is likely to contract slightly in 2014 with macroeconomic and political factors in China being the principal cause. A slowdown in China's economic growth, recent corruption crackdown, and credit tightening have had a particularly strong impact on Singapore's casinos. The VIP business, which is mostly Chinese, accounts for roughly half of total gaming revenue at MBS and RWS," its statement read. 

It is worth noting that Genting Singapore PLC is 51.88%-owned by Genting Bhd.

Fitch expects VIP numbers to improve in the latter part of 2015 and maintains that the tightening restrictions within China are only temporary. However, it said Singapore's gaming market is set to face not only more regional competition, but also potential changes to gaming policies that will weigh on their medium-term growth and profitability outlook.

"The Philippines will have three large-scale casino resorts by the end of 2014, and several major new casino projects are under construction in Macau. Political momentum to legalise casinos is the strongest it has ever been in Japan, while Sri Lanka, Vietnam, Cambodia, Korea, Russia and Australia are all likely to open new casinos by 2020," it noted.

Meanwhile, it noted that since granting its first gaming licences in 2006, Singapore has limited the casinos' ability to expand by imposing a SG$100 entrance fee on Singapore citizens and permanent residents and restricting their advertising and promotional scope locally. Political momentum is unlikely to shift towards greater liberalisation, at least in the short term, with recent parliamentary debates focusing on gaming policy, it said.

By law, Singapore's accommodating gaming tax is locked in at least until 2022. But this, Fitch noted, could be revisited as the government considers granting additional licences when the duopoly period ends in 2017. 

"The government has been tight-lipped on the subject, but recent political discussions suggest that it is unlikely that more gaming licences would be granted. However, it remains a potential risk for Singapore's existing casino operators, and the market remains very attractive to new entrants despite the potential for more regional competition," Fitch's statement further read.