Marina Bay Sands earnings plunged 31% in 4Q13

Blame it on weak VIP business.

According to CIMB, Marina Bay Sand reported a weak 4Q13, with EBITDA falling by 31% yoy because of the negative operating leverage for the VIP business that was hit by low betting turnover and a bad win rate.

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We do not expect GENS to post a similar performance as its VIP business is expanding to ASEAN clientele but MBS’s customers are still largely mainland Chinese.

What Happened
MBS’s recently released operating data showed that GGR was US$689m in 4Q13, down 15% qoq and 10% yoy. The weakness came from the VIP segment that saw rolling chip turnover remain flat qoq but down by 17% yoy to US$13.73bn.

Receivables fell from US$1.1bn in 3Q13 to US$1bn in 4Q13 as VIP cash collection stayed healthy at US$403m compared with US$342m in 3Q13.

Non-rolling chip turnover on the mass floor fell by 2% qoq but rose by 2% yoy to US$1.14bn. 4Q13 adjusted EBITDA fell by 31% yoy and 14% qoq to US$259m on the back of the negative operating leverage.

EBITDA margin contracted to 38% in 4Q13 from 46% in 3Q13. It was disclosed that on a hold-adjusted basis, the EBITDA margin would have been stable at 47%.

Management is pleased with the performance of the mass business as premium foreign players are increasing and offsetting the lower local patronage due to government restrictions. The outlook for VIP growth is flattish as the business is still concentrated to a limited number of customers.

Management has brought in experts to look at why the VIP hold rate is below average but they have found no structural issues. LV Sands is opening an office in Japan to follow up on the integrated resort (IR) opportunities there. As 22% of its visitors are from Japan, MBS already has a strong franchise in the country.

The first round of gaming legislation has been approved in Japan. The second stage, which will determine the location parameters and other guidelines, is expected to be completed in June.

What We Think
VIP and mass market trends is starting to show Resorts World Sentosa (RWS) is gaining advantage in the VIP business, while MBS is strong in the mass market due to its location. The trend in RWS’s VIP strength began in 3Q13.