Inside Asian Gaming

inside asian gaming September 2015 26 Tan Hee Teck Chairman and CEO Resorts World Sentosa Many believe obtaining a Singapore gaming license was crucial for Genting, to protect its original Genting Highlands property, now named Resorts World Genting, in Malaysia. Tan Hee Teck, who’d joined Genting in 1982 and left, was lured back from his position as chief operating officer and executive director of Singapore’s DBS Vickers Securities in 2004 to lead Genting’s license bid. In December 2006, after losing to Las Vegas Sands for Marina Bay, Genting was granted the license for the Sentosa integrated resort site. As Resorts World Sentosa’s chief executive from its inception, Mr Tan has overseen its construction, opening in February 2010 and operation. This February, he was given the additional title of RWS chairman. Built at a cost of $5.7 billion with 1,600 rooms, 565 gaming tables, 2,451 machines, a Universal Studios theme park, aquarium, water park and destination spa, RWS has supplanted the original Malaysia resort as Genting’s flagship property. Last year, RWS recorded revenue of S$2.86 billion (US$2.16 billion) and EBITDA of S$1.21 billion. Revenue was up 1% from the previous year, while EBITDA was down 3%. That points up one key issue for Genting Singapore: a stagnant gaming market. For the first half of this year, revenue fell 20% from last year to S$531 million and EBITDA fell 52% to S$332 million, including a S$213 million loss on foreign exchange hedging via derivatives. Adjusted EBITDA, on a normalized hold and eliminating one-offs, including a S$110 million tax refund, was S$270 million. Gaming revenue for RWS fell 27%, pointing out the volatility of its relatively small VIP pool in a market with severe junket restrictions, amplified by the downturn in Chinese high roller play. RWS does business with the only three registered junkets Singapore has licensed, but most VIP play is direct. Morgan Stanley Asia, bullish on Genting Singapore, points out that mass revenue rose 2% year on year, adjusted EBITDA beat expectations and impairment loss fell 31% year on year to S$57 million. Less bullish Union Gaming Securities Asia sees a growing performance gap between RWS and Marina Bay Sands. MBS has overtaken RWS in VIP roll and maintains its lead in the more profitable mass market segment. Union says Genting Singapore’s 557-room Jurong Hotel hasn’t yet contributed significantly to mass market revenue, and its distance from RWS, about 15 minutes by car, much longer by mass transit, is likely to remain an issue. Perhaps most troubling for RWS is declining non-gaming revenue in year-on-year terms over the past four quarters, after that segment grew consistently during its first four-and-a-half years of operations. Limited MICE and retail space crimp growth, particularly in comparison with MBS. The key to growth for Genting Singapore is expansion beyond the city-state, an effort Mr Tan is overseeing in Asia as the company’s chief operating officer. The company remains hopeful about Japan, where Genting has registered several subsidiaries. But while Japan’s casino legalization outlook remains murky, there’s a real opportunity in South Korea, where Genting is partnered with Hong Kong-listed mainland China property developer Landing International to create the $1.8 billion Resorts World Jeju. A volcanic island off the Korean peninsula’s southern coast, Jeju is South Korea’s most popular domestic tourism spot—the one-hour flight between Seoul and Jeju is among the world’s three busiest routes, with nearly 7 million passengers in each direction in 2013—and offers visa-free access to mainland Chinese, welcoming 2.9 million last year, a 58% rise over 2013. Known as Korea’s Hawaii, Jeju’s climate is warmer than the peninsula, with temperatures rarely dropping below freezing. Jeju features Mount Halla, whose lava flows formed the 1,848-square-kilometer (714 square mile) island. Volcanic tubes and other formations, along with large tracts of pristine forest, have made Jeju a UNESCO World Heritage site. “RWJ will be a game changer in Jeju that we believe can help the province attain its goal of surpassing 15 million tourists by 2018,” Genting Singapore Executive Chairman LimKok Thay said at the site’s February groundbreaking, The ceremony came after the partnership convinced newly elected Jeju Governor Won Hee-Ryong of the project’s merits. Following the RWS model, the resort will include 2,000 hotel rooms and a theme park in addition to the casino. But the 260-hectare (642 acre) site is more than five times the size of the Sentosa plot, so there’s room for more retail and residences, which the developers hope can defray much of the capital expenditure through presales. Foreigners that buy property on Jeju valued at 500 million Korean won ($421,000) and hold it for five years are eligible for permanent residency. Jeju still represents a gamble. The casino will be for foreigners only, and Daiwa Securities predicts it will increase Genting Singapore’s earnings by no more than 2%. There could be positive impact for RW Manila, where sister company Genting Hong Kong is a partner, building the brand among Koreans, the largest visitor market for the Philippines. It’s another chance for Mr Tan to be a good team player.