Inside Asian Gaming

INSIDE ASIAN GAMING | June 2013 8 COVER STORY who got in, because even though they are capacity constrained—it’s unlikely they will be allowed to significantly expand their casinos in the foreseeable future—the duopoly arrangement conferred by the government’s commitment to not license any new casinos until at least 2017 has made the two IRs among the most profitable such properties in the world. MBS turned in adjusted earnings before interest, taxes, depreciation and amortization of US$397 million in the first quarter of this year, though adjusted for luck it would have been $451 million. RWS had a disappointing first quarter, with EBITDA declining 33% year on year to S$250 million (US$198 million), though this was largely the result of a very low VIP win rate of 2.12% (versus theoretical of 2.85%). Adjusted for luck, EBITDA would have been around S$400 million. Both properties have experienced significant fluctuation in their VIP win rate from quarter to quarter, as shown in the following table, and while it was Resorts World that took a hit in the latest quarter, it was MBS that suffered bad luck in the quarter before. Though VIP revenue constitutes a much smaller proportion of overall gaming revenue in Singapore than in Macau, both MBS and RWS rely on a relatively small number of big whales to drive their high-roller businesses, leading to greater volatility, whereas Macau’s casinos have a Singapore Mass Revenue Market Share Source: Company data and J.P. Morgan estimates 70% MBS RWS 60% 50% 40% 30% 20% 10% 0% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 35% 65% 50% 50% 50% 50% 49% 51% 51% 49% 52% 48% 55% 45% 52% 48% 53% 47% 53% 47% 52% 48% 52% 48% Singapore Slot Revenue Market Share Source: Company data and J.P. Morgan estimates 70% MBS RWS 60% 50% 40% 30% 20% 10% 0% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 40% 60% 57% 43% 59% 41% 61% 39% 63% 37% 59% 41% 61% 39% 57% 43% 57% 43% 57% 43% 57% 43% 59% 41% Singapore’s casino industry has simply never sustained (over a year rather than an isolated quarter) Macau-scale growth against a properly established base of comparison. year-on-year gaming revenue growth rates in the second and third quarters of 2011, the second-quarter comparison is an unfair one because MBS was only open for two full months in the same quarter of the previous year. Even the 3Q year-ago base is compromised because at the time both IRs were still ramping up and finding their way in a new market. In all subsequent quarters, from 4Q 2011 onwards, year-on-year growth has only climbed as high as about 10% while overall market revenue has even contracted in two of the more recent quarters, including a slight dip in the first quarter of 2013 and a precipitous decline of more than 20% in 3Q 2012. Singapore’s casino industry has simply never sustained (over a year rather than an isolated quarter) Macau-scale growth against a properly established base of comparison. That doesn’t mean it isn’t a great investment for the two operators