Singapore gaming industry hit by stringent restrictions

Industry's revenue projected to drop 22% in 3Q12.

Total Singapore gaming industry revenue is estimated by Nomura at SGD1.5bn for 3Q12, down 8% q-q and 22% y-y. YTD, Nomura estimates the Singapore gaming revenue at SGD5.2bn, down 6% y-y.

Nomura said that Genting Singapore's announcement of weak financial performance for 3Q affirms the pessimistic forecast.

Here's from Nomura:

GENS today reported 3Q12 gaming revenues of SGD528.4mn, 24% below our expectations and 20% below consensus. RWS 3Q12 EBITDA at SGD303.9mn was in line with our estimates of SGD303.8mn. Total 9M12 gaming revenue came in at SGD1.7bn, down 15% y-y, forming 61% of ours and 69% of consensus full-year estimates.

What do the results mean?
With 9M earnings at SGD515mn annualizing 10-12% below consensus and our full-year estimates, we expect some earnings downgrades from the street on the back of these results.

Likely stock reaction
We expect a weak share price performance post 3Q12 results given the decline in overall volumes and revenue.

Key numbers
 VIP rolling volumes declined 3% q-q (vs our estimate of flat volumes q-q) with a win rate of 2.8%, compared to 3.1% in 2Q12.
 Non rolling chip volumes went down 3-4% q-q, while the win rate improved by 1%, resulting in flat non rolling chip revenues sequentially.
 Total Singapore gaming industry revenue is estimated by us at SGD1.5bn for 3Q12, down 8% q-q and 22% y-y. YTD, we estimate the Singapore gaming revenue at SGD5.2bn, down 6% y-y.
 Market share stood at 51% for rolling chip volume; 47% for mass market.
 GENS reported blended EBITDA margins at 45% in 3Q12, flat q-q, which it guides to remain under pressure for the next two quarters as well, given higher pre-opening operating expenses and capacity building expenses at Marine Life Park, whose soft launch is expected in December 2012. The company expects margins to improve only from 2Q13 onwards.
 The company acknowledged that local Singaporean visitors to the casino have gone down while visitors from Malaysia and Indonesia have marginally improved in 3Q12. However, given the strict Singapore laws on gambling, the company expects the local market to suffer a bit in future and plans to focus on tourists from outside Singapore.
 Receivables continued to decline to SGD700mn owing to a slowdown in credit grants, with a decline in commission rates q-q. Total bad debt provisions remained flat q-q.

Reaffirm Reduce
More stringent restrictions imposed on the frequency of gamblers’ visits (in addition to the current family and voluntary self-exclusion) likely to
take place ahead of the renewal of its gaming license in 2013, could dent the growth prospects from 2013. Our sensitivity analysis suggests that a 10% decline in the mass-market business (non-rolling chip and slots) could slash 2013 earnings by 18% and imply a 10% lower target price. Relative to peers in Macau and Malaysia, GENS shares are still trading at an 8% premium in P/E for FY13F. We view this as hard to justify given increasing regulatory and earnings risks. Our earnings and target price are under review.



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