Inside Asian Gaming

INSIDE ASIAN GAMING | December 2008 14 Cover Story Who’s That Knocking? Structural issues such as Macau’s high gaming tax rate could provide opportunities for Singapore and others Despite Singapore’s far more favourable gaming tax regime, Macau will retain the lion’s share of casino revenue in the region “W e believe Singapore’s key competitive advantage over Macau is its lower gaming tax rate, which provides operators with more room to raise junket commission to attract players,” says the Goldman Sachs paper. “In Macau, for example, after paying 39% of revenue for gaming tax, 46% for junket commission and another 6% for operating/ overhead costs, we estimate casino operators’ (under our coverage) average normalized EBITDA [earnings before interest, taxation, depreciation and amortisation] wouldbe 9%.In Singapore,our ASEAN conglomerates analyst expects EBITDA to be as high as 30%+ due to lower VIP gaming tax rate (12% in Singapore vs 39% in Macau). “On the other hand,given its location and more stringent process of visa applications for Chinese visitors, we believe the Singapore casinos may be more appealing to visitors from the ASEAN countries vs. the PRC,” adds the report. during this recession by the impact of the rationing of visits under the IVS to as infrequently as four times a year. “For 2009E, we believe the [gaming revenue] growth may be similar to the levels in 1998/99 unless the government announces some relaxation in its policies. Besides, high competition for junket commissions earlier this year had driven up rolling volumes, making 1H2008 a high base for comparison next year,” says the research paper. Encouraging signs? Goldman Sachs says the global economic turmoil could be a factor leading to a relaxation of the travel restrictions from China. “In recent weeks, the media (including Hong Kong newspaper South China Morning Post and Macao Daily ) quoted various government officials as saying that the Chinese government is fully supportive of Macau’s development, thereby encouraging hope that some relaxations of the policies may be announced in the near term,” says the research paper. “Although it is difficult to estimate whether and when this will happen, we believe the key considerations are first: well-being of the economy; and second, social issues in Macau. “Macau’s economy is heavily dependent on tourism with 56% of its GDP coming from gaming/public spending and 9% from retail/ entertainment.A relaxation in travel restrictions and hence a recovery in tourist arrivals would have a direct effect on the economy, in our view. On the other hand, the influx of mainland tourists also has a social impact on Macau (e.g. illegal workers, rising crime rates), which may take time to resolve. We believe the government would aim to strike a balance between the two. “We believe factors such as Macau’s GDP growth slowing down drastically or unemployment rising sharply may prompt the government to reconsider its policies. In 1H2008, Macau recorded 26% real GDP growth, which our economics team forecasts will slow to 6% in 2H2008,” says the report.