Here's a quick guide to why Genting Singapore will have sluggish gains

IIs it game over?

According to DBS, MBS has started to see weakness in its stronghold mass market, with both table drop and slot handle declining 6% y-o-y (6%,4% q-o-q respectively), mainly due to lower local play.

Here's more from DBS:

While rolling chip rebounded marginally by 2% q-o-q (-29% y-o-y with 3Q11 being an exceptionally strong quarter), VIP demand remains soft especially from China.

MBS will focus on expanding foreign premium mass segment and VIP segment to drive future growth. As for non-gaming, record revenue (20% of net revenue) was driven by almost full occupancy and higher ARR (US$361 from US$351).

With the proposal to liberalise the gaming market in Japan to be tabled in Apr 2013, Las Vegas Sands (LVS) expects another 1-2 years before any approvals come (targeting Osaka and Tokyo).

LVS is also pursuing South Korea (Seoul and Busan) but has yet to negotiate any favourable tax rates and relaxation on restriction on local patronage. Vietnam (HCMC, Hanoi) also remains under LVS’ radar.

Given limited new markets opening up, GENS may need to wait a while longer before it can put to good use its S$2.3b perpetual bonds which incurs S$119m interest p.a. (11% of 2013F earnings).

We expect Singapore gaming to remain soft given weaker demand and cautious lending to VIPs (new junket licences likely come later rather than sooner) along with slower growth in tourist arrivals.

However, we expect 4Q12 to be seasonally stronger along with completion of RWS Western Zone. Policy risk persists with proposed amendments to Casino Control Act to be tabled in Parliament by end-2012.

Our S$1.45 TP is based on 9x 2013F EV/EBITDA (10% discount to Macau gaming sector’s 10x which offers stronger growth potential). GENS is due to release its 3Q12 results on 12 Nov, which we expect to exhibit similar softness as MBS.