The junket rules that the authorities are likely to introduce will mean a slow start for VIP (high roller) volumes at Genting Singapore, at least in the short term. The Genting gp, I understand, has always believed junket operators are the key to its VIP segment.
So the VIP gaming volumes at Sentosa will take time build up. Note that the preference for using junket operators for the VIP segment reflects the more conservative nature of the Genting gp. Bad debts are the responsibility of the operators, not the casino. In return, the operators get a bigger share of the gamblers’ spending.
Bank of America Merrill Lynch analyst Melvyn Boey estimates VIP clients will account for about 50% of the business at the Singapore casinos. But of these VIP clients, only about 30% might be expected to be brought in by junket operators with most being ‘in-house VIP clients’. Now 30% of 50% sounds a lot to me, though he says it is “insignificant”.
I suspect he must be thinking of Sands rather than Genting S. Sands has said that it will rely on its in-hse VIP gamblers for Sands S’pore.
Funnily, Genting S has an advantage versus SS because the Genting gp stronger financials mean that it can more easily finance in-hse VIP clients. Sands gp isn’t exactly cash rich.
With a recent rally in its share price, Genting S now trades at over 17x 2011e EV/EBITDA. Sands China and Wynn Macau, with existing cashflows in the largest gaming. market in the world, trade below 11x. Even if EBITDA were 50% higher than consensus forecast, valuations are stretched. The recent selling in heavy volume could be a reflection that the institutional investors are realising this. Foreign brokers are calling a “Sell” at these levels.
Or the selling could simply reflect that falls in HK of Winn Macau and Sands China.