You won’t believe how Singapore can beat Las Vegas as the world's second largest gaming market

Another record quarter with growth across all segments

MBS’ 3Q11 EBITDA came in at US$414m or S$516m (+2%qoq, +71%yoy), with net revenue hitting US$792m or S$988m (+7%qoq, +63%yoy). Normalising for lower VIP win rate (2.69% vs theoretical average 2.7-3.0%; 2Q11: 2.99%) and US$6m non-recurring expenses, EBITDA margin would have been 54% vs 2Q11’s 55% – marginally dragged by higher contribution from VIP segment (52% of GGR; 2Q11: 49%).

VIP rolling chip of US$16.7b (+37%qoq, +63%yoy) have been growing sequentially for the past 3 quarters, while mass drop grew 8% qoq and slots handle +17%qoq (both hold rates remained steady). Average daily net win/table and daily net win/slot increased to US$13,205 (+18%qoq) and US$662 (+8%qoq) respectively. Non-gaming revenue
constituted 14% of gross revenue (2Q11: 16%) with hotel occupancy rate improving to 98% from 91% despite ARR +11%qoq to US$327/room-night. Visitor arrivals to the casino was flat qoq, but higher for the property.

Industry GGR expanding, but GENS may lose pole position. MBS’ overall market share may improve from 2Q11’s 48% (based on normalized GGR) should GENS’ rolling chip continue its contraction since 1Q11 (but GENS has been losing much less than MBS’ gain as industry rolling chip grew 3%qoq in 2Q11). MBS’ leading position in mass market will likely be boosted further by completion of Circle Line stop by 1Q12 and international cruise terminal by 2Q12. Singapore GGR could surpass our 2011-12F estimate of US$5.7bn and US$6.8bn (2010F: US$3.3bn), potentially replacing Las Vegas as world’s second largest gaming market.

GENS offers the most direct exposure to Singapore gaming. GENS will be releasing 3Q11 results on 10 Nov, which should be stronger qoq with normalization of VIP win rate (2Q11: 2.66%). We expect stronger 2H11 performance on the back of further ramp-up in casino operations rampingup (2500 slots from 1800 by end-11), seasonally stronger visitor arrivals (Transformer ride launching in Dec11) and gradual opening of Western Zone (bigger rooms to attract higher-end VIP patrons). GENS is trading at an attractive 8x 2012F EV/EBITDA vs Macau big-cap casino operators’ 12x.