Fitch: Singapore casinos to be resilient to drop in visitors

[SINGAPORE] Fitch Ratings says that the credit profiles of the casinos in Singapore are likely to remain resilient, even though a decline in international visitor arrivals to the country will see a weakening of gaming growth in Singapore.

Both Genting Singapore Plc and Marina Bay Sands (MBS) are mature gaming properties that will be able to withstand narrower EBITDA margins for the next 12 to 18 months without impairing their underlying credit profiles. Longer term however, the Singapore casinos will face increasing regional competition from new casinos in the Philippines, Macau and, potentially, Japan.

The 6 per cent decline in international visitor arrivals to Singapore in 2Q14 from a year earlier has had a strong impact on Singapore's casinos. The sharp drop in arrivals from China, an important VIP market for the two casinos, reflects the slower economic growth, recent corruption crackdown and credit tightening. Fitch believes the sharp contraction in revenue from the VIP segment is temporary and that VIP numbers will improve in the latter part of 2015.

The lower Chinese inbound visitors also reflects the implementation of new rules in October 2013 that address practices such as coercive shopping trips, and low price-low quality tours. They have also been affected by the disappearance of Malaysia Airlines flight MH370, the abduction of Chinese visitors in Sabah and political unrest in Thailand.

GENS's net gaming revenue fell 21 per cent in 3Q14 from a year earlier to S$477 million. The performance of its non-gaming businesses, which include hotels, theme parks, and retail outlets was mostly unchanged. GENS reported a lower, though still robust, EBITDA margin of 39 per cent compared with 44 per cent in 3Q13.

GENS's credit profile is supported by its net cash position. It had SGD3.19bn in readily available cash as of 30 September 2014, compared with its SGD3.05bn of gross adjusted debt (which includes a 50 per cent equity credit for the SGD2.28bn perpetual capital securities).

MBS's earnings were more resilient than GENS's during 3Q14, largely due to a favourable business mix as it grabbed a larger share of the stable higher-margin mass-market segment. However there is no certainty that it will be able to sustain this trend in the coming 12 to 18 months, especially because its hotel is in the more cyclical luxury category. MBS's net gaming revenue fell 8.7 per cent to SGD573.5m. Its non-gaming businesses performed well, helping to narrow the decline in revenue (the sum of net gaming revenue and non-gaming revenue) to 5 per cent to SGD948.79m. Its EBITDA margin fell by 50bp to a still robust 47.8 per cent.

MBS' net debt to trailing 12 months EBITDA is moderate at 2.2x as of 30 September 2014. Fitch estimates that a 25 per cent decline in MBS' EBITDA in US dollar terms would result in its net debt to EBITDA ratio remaining under a still-acceptable 3.0x.

Fitch does not expect the projected 5.7 per cent rise in hotel rooms in Singapore to 59,788 rooms in 2015 to adversely affect the hotel businesses of both casinos, which are currently operating at occupancy rates of at least 95 per cent. Both properties have distinct locational advantages and have captive clientele in their casino and non-gaming patrons. Also, hotels in Singapore are operating at near full capacity with an industry-wide occupancy rate of 90.4 per cent as of August 2014 (despite the lower tourist arrivals). The increase in hotel rooms would cater to stable visitor arrivals from Indonesia and India, and rising tourist traffic from South Korea and the US.

FITCH