Singapore’s two casinos will see their growth and profitability impaired by increased regional competition and potential changes to gaming policies, but the outlook should brighten in 2015.
This is according to a new report by Fitch Ratings, which says the current sharp contraction in revenue from VIP gamblers in the second-half is temporary, and that both Marina Bay Sands and Resorts World Sentosa will see improved results in the months ahead.
At this point, growth in Singapore gaming revenue has stalled, and is likely to contract slightly in 2014 with macroeconomic and political factors in China being the principal cause, the agency said. A slowdown in China’s economic growth, combined with a tightening of credit and the government’s aggressive corruption crackdown, have had a particularly strong impact on the casinos. The VIP business, which is mostly Chinese, accounts for roughly half of total gaming revenue at MBS and RWS both.
Fitch expects VIP numbers to improve in the latter part of 2015, and maintains that the macro issues in China are temporary.
That said, the ability of MBS and RWS to tap into a Chinese recovery and the broader growth will be challenged in the longer term, especially as it faces increased regional competition from new casinos in the Philippines, Macau and, potentially, Japan. Sri Lanka, Vietnam, Cambodia, Korea, Russia and Australia are all likely to open new casinos by 2020.
Regulatory risks could also add to the challenges. The government restricts domestic access to the resorts through entry fees and strict curbs on promotion and advertising, and that is not likely to change. The tax rate is accommodating, and is locked in at least until 2022. But that could change as the government considers granting additional licenses when the duopoly period ends in 2017.
The government has been tight-lipped on the subject, but recent political discussions suggest that it is unlikely that more gaming licenses would be granted. However, it remains a potential risk for both resorts, Fitch said.
