Singapore Government Winner in Casino Expansion

The Singapore government is seen as the main winner in the agreement to allow a US$6.7 billion expansion of the island’s two integrated resorts, gaining more tax and higher money from entry fees, according to analysts.

Morgan Stanley downgraded Genting Singapore to equal weight after the announcement, saying that the company will suffer near-term pain, with any gain not likely until after 2024, once its new facilities are completed.

The firm said that based on an assumption that 25% of its business comes from Singaporeans and that 10% of them will be put off by the 50% hike in casino entrance fees, Genting Singapore is likely to suffer a 2% hit to EBITDA from 2019 to 2021. Thereafter, the companies will have to pay a further 3% in tax, which will reduce EBITDA estimates another 6% from 2022 onwards.

Morgan Stanley said Genting Singapore also risks losing market share to its larger rival Marina Bay Sands.

Genting Singapore’s stock fell sharply on Thursday, the day after the announcement of the casino expansion was made, though recovered to close up 1.5% on Friday.

Under the expansion plans, both IRs will invest US$3.3 billion to expand non-gaming facilities. In return, they will be allowed to add more gaming space and additional gaming machines. However, given the overall expansion in the resorts, the total ratio of gaming space to non-gaming space will decline.

Union Gaming said it was lowering its earnings forecasts for Genting Singapore. It said the casino entry fee may also help regional markets, such as Cambodia, Macau, or Vietnam, and the hike will translate into a low-cost airfare somewhere else.

“While we believe this is misguided and more likely to exacerbate problem gaming, it will most certainly have a negative impact on casual local mass market customers,” the report said. “We are now modeling a 15% decline in mass GGR for Resorts World Sentosa over the next 12 months.” (AGB)