Year-long earnings drought awaits local casinos as high-rolling tourists vanish

Can the gaming giants withstand it?

Singapore’s gaming growth might come to a standstill as cash-flushed tourists vanish.. According to Fitch Ratings, weak gaming growth will cause both Genting Singapore and Marina Bay Sands to struggle with compressed margins in the next twelve to eighteen months.

In the longer term, local casinos will also have to contend with intense regional competition as new casinos mushroom across the region, especially in countries such as the Philippines, Macau, and even Japan.

“ The 6% decline in international visitor arrivals to Singapore in 2Q14 from a year earlier has had a strong impact on Singapore's casinos. The sharp drop in arrivals from China, an important VIP market for the two casinos, reflects the slower economic growth, recent corruption crackdown and credit tightening,” noted Fitch.

However, Fitch also notes that the VIP tourist dearth is temporary and VIP numbers will improve in the latter part of 2015.

The credit profiles of local casinos will also remain resilient, as both Genting and MBS are mature gaming properties that can withstand smaller earnings without impairing their underlying credit profiles.

Here’s more from Fitch:
GENS's net gaming revenue fell 21% in 3Q14 from a year earlier to SGD477m. GENS's credit profile is supported by its net cash position. It had SGD3.19bn in readily available cash as of 30 September 2014, compared with its SGD3.05bn of gross adjusted debt (which includes a 50% equity credit for the SGD2.28bn perpetual capital securities).

MBS's earnings were more resilient than GENS's during 3Q14, largely due to a favourable business mix as it grabbed a larger share of the stable higher-margin mass-market segment. 

However there is no certainty that it will be able to sustain this trend in the coming 12 to 18 months, especially because its hotel is in the more cyclical luxury category. MBS's net gaming revenue fell 8.7% to SGD573.5m.

Its non-gaming businesses performed well, helping to narrow the decline in revenue (the sum of net gaming revenue and non-gaming revenue) to 5% to SGD948.79m.

Its EBITDA margin fell by 50bp to a still robust 47.8%.MBS' net debt to trailing 12 months EBITDA is moderate at 2.2x as of 30 September 2014. Fitch estimates that a 25% decline in MBS' EBITDA in US dollar terms would result in its net debt to EBITDA ratio remaining under a still-acceptable 3.0x.