Business Times Singapore featured this article concerning the pros and cons of the earlier opening and the potential downsides of the rules on the operation of junkets."Genting Singapore appears to be on a roll with its share price increasing from about S$1.17 (RM2.84) per share just before Christmas to hit almost S$1.30 per share yesterday. This despite news that its junket business may be affected by strict regulations in the future.
The increase of around 10 per cent over a two-week period can largely be attributed to the revelation that its Resorts World at Sentosa (RWS) will very likely open before Las Vegas Sands’ (LVS) Marina Bay Sands, confirmed, more or less, by LVS chairman Sheldon Adelson who said its resort will open in the second quarter of 2010.
The perceived advantage is that RWS’s casino could have a headstart in developing a base of Singaporean regulars who will likely choose to pay a S$2,000 annual entrance fee over the S$100 daily entrance fee, thus locking in their choice destination. The release of Casino Regulatory Authority’s (CRA) junket licensing regime also failed to dampen investor sentiments.
In a research note, CIMB analysts said that while stringent regulations could threaten RWS’s VIP gaming revenue, “we think that such concerns are largely long-term in nature.”
CIMB added: ‘Over the short-term, we believe that the novelty effect would naturally drive in the punters, allowing RWS to nurture its higher-margined in-house VIP market by leveraging on the Genting Group’s extensive gaming foothold and clientele base.’
After acknowledging downside risks like having to extend credit to in-house VIP clients, CIMB still retained its FY10-11 revenue projections for Genting Singapore of S$2.94 billion and S$3.57 billion respectively.
Analysts at JP Morgan say the strict junket regulations were “expected” and appear to have priced this in. Their revenue forecasts for Genting Singapore in FY10-11 are even higher at S$3.54 billion and S$4.11 billion respectively.
Even analysts at Goldman Sachs, who are the least bullish with a “sell” call on the stock, have revenue projections for FY10-11 of S$2.97 billion and S$3.68 billion respectively.
The assumption, it seems, is that there will be significant business generated by VIP casino clients with at least a couple of major junket promoters applying for licences to operate in Singapore. The consensus is that they will bring in about 40-50 per cent of total gaming revenue.
But a look at the actual application forms for junket licences which was released by CRA a few days after it released the junket regulations reveals that the probity checks on promoters are as strict as those for casino operators.
For example, applicants have to declare if they, their spouses or children, have made loans over S$25,000 in the last 10 years. Applicants also have to list all assets, bank accounts (foreign and domestic) and business activities for the last 15 years.
It seems Adelson may be right when he said recently that junket promoters will not come to Singapore.
Apart from opening the casino on time — the official date is still Q1’10 — there is another hurdle that Genting Singapore will have to contend with, and that is how rigorously the government here intends to regulate credit facilities offered by casinos and junket promoters. Should these prove to be strict as well, some high-rollers may not be able to arrange credit with either the casino or junket promoters to gamble with.
If that happens, it may then be time to review revenue projections.
Meanwhile, let us just wait and see human psychology when it is set in motion as the casino licence is approved for operation. I think it will be before Chinese New Year.
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