Inside Asian Gaming

INSIDE ASIAN GAMING | September 2009 40 Asian VIP market There are a lot of discussions about how much market share Singapore can take from Macau. Not much, we believe We estimate the AsianVIPmarket at US$12 billion—mostly fromMacau, whoseVIPmarket comprises mainly visitors from the mainland China, Hong Kong and Southeast Asia. The latter represents a huge potential market for Singapore. There is huge amount of pent-up VIP demand in Asia—from Singapore, Indonesia and other Southeast Asian countries. And, again, there are many reasons to visit Singapore (business, family, etc) even before the introduction of casinos. Macau does not appeal to many of these nationalities. Meanwhile, Melbourne has a well-established casino but is 10 hours away from most Asian cities. Las Vegas is also too far. Genting is not high-end enough to attract many non-Malaysians. So, which markets will lose share? Macau’s VIP revenue is captive to the city itself, given currency-related controls and issues relating to VIP players’ creditworthiness. For example, most Chinese VIPs are unable to move substantial capital outside China and hence are dependent on junket operators to provide capital. While it is difficult to quantify, we understand that about 75% of VIPs in Macau originate from China. Macau has a high gaming tax rate of 39% versus only 12% in Singapore. This is huge and suggests that casinos in the island-state could afford to pay a much higher commission to junkets to bring players from China. However, we expect the higher rate to be available to limited parties—only those that would consider travelling the extra distance to Singapore in the first place. We believe a large chunk of Chinese playerswill prefer toplay inMacau for cultural reasons, comfort and the close location. The two Singapore integrated resorts have invested huge amount of capital, giving rise to substantial debt. They will be eager to generate adequate returns, lowering the chance of higher commissions. We believe the two operators may agree on a set of junket commissions. This is already happening in the more challenging Macau, where are they are six concession holders and 32 casinos. Market Outlook Singapore versus Macau While Macau remains reliant on Chinese tourists, we expect Singapore to capture other Asian markets. The island-state also has a larger local market versus the PRC special administrative zone Average length of stay As highlighted above, the number of tourist arrivals in Macau is much higher than in Singapore (at 22.9 million versus 10.1 million). But the average length of stay in Macau is around 1.4 days versus 3.5 days in Singapore. Therefore, the total tourist days in Macau is 32 million days versus Singapore at 35 million days. Macau has been unsuccessful at extending the average length of stay as it lacked entertainment options. Yet, this has improved slightly since the opening of casino-resorts such as The Venetian, MGM and City of Dreams. Still, Singapore has its advantage as there aremany other reasons to visit the island-state as a tourist, apart from the upcoming casinos. The huge number of business visitors also creates another potential captive market for the integrated resorts. The Singapore Tourist Board aims to boost tourists’ average length of stay per person from three days to 4.5 days. Based on our tourist-arrivals forecast, this implies 32.4-76.5 million days between 2008 and 2015. However, while tourists from further afield such as India, Europe and the US are likely to spend a longer time in Singapore, tourists from nearby countries such as Indonesia will still visit Singapore for a shorter period of time. We, therefore, believe the average length of stay will increase by a lesser amount than government forecasts of around four days. Don’t forget the locals More so than in most other gaming markets, local people will form an important regular traffic driver at casinos in the island-state. We expect population growth of about 3% over the next six years, driven by an 1.6% increase in local Singaporeans and 8% in foreign residents. Both of these estimates are in line with recent historical averages. Gaming-markets comparison Our estimate of US$3.2 billion normalised gaming revenue in 2010 puts Singapore at around 23% of Macau’s 2008 revenue (US$14 billion), 53% of that of Las Vegas Strip (US$6 billion), three times the Malaysian gaming market (US$1 billion), and about 3 times that of Melbourne (US$1.2 billion) and 5 times that of Sydney (US$0.6 billion). We do not include Japan in the chart below as its gaming market comprises mainly pachinko / pachislot venues rather than casinos. Still, the sector generates around US$25 billion in net win per year—this further highlights the Asian appetite for gaming. Asian VIP revenue (US&m) Las Vegas Strip 1,260 Macau 9,500 Australia 432 Korea 493 Malaysia 300 Total 11,985 Casino gaming revenue, 2008 Macau Las Vegas Strip Atlantic City Singapore Korea Melbourne Malaysia Sydney 0 2 4 6 8 10 12 14 16 Note: Singapore revenue numbers are 2010 estimates. Source: CLSA Asia-Pacific Markets, DICJ, Nevada Gaming Association Source: CLSA Asia-Pacific Markets