SINGAPORE (Dec 4): Genting Singapore’s profitability in the next couple of years is set to take a “serious” hit as premium players from China are not coming back to its casino in the city-state, according to Macquarie Capital Securities.

These players are the “bread and butter” of casinos in Singapore, accounting for more than half of gross gaming revenues at Genting Singapore and Marina Bay Sands, Macquarie analyst Somesh Kumar Agarwal pointed out in a research note.

While their contribution to Genting Singapore’s earnings has declined this year, the impact will be even greater in the next two years amid China’s ongoing efforts to rein in the country’s shadow banking industry, Agarwal wrote.

More than 90% of Chinese premium players are bosses of small and medium enterprises that have benefited in recent years from the strong growth in China’s shadow banking sector, he noted.

But as Beijing seeks to contain the problems associated with the boom in shadow-bank lending, many SMEs in China are suffering as liquidity previously available to them is drying up, he said.

“Unlike in the previous two downturns in 2009 and 2012, current leaders are wary of the systemic risks of China’s rising debt, especially within the shadow banking sector, and are reluctant to repeat past policy mistakes while pushing through much-needed structural reforms such as interest-rate liberalisation.

“The tightening in shadow bank tightening in China is thus the major reason behind the VIP volume decline in 2014.”

Against this backdrop, the best days of China’s shadow banking industry, and therefore the “glory days” for casinos, are over, according to Agarwal.

“We think that China’s clampdown will continue to release pressure on a debt-burdened economy, which implies that the VIP play glory days may never come back.”

With “no growth” and “no use” of its huge cash pile, Genting Singapore is expensive as far as its current share price is concerned, he said.

“We see 16% downside from current levels as consensus continues to downgrade estimates.”

Macquarie has an “underperform” call and a price target of 95 cents on Genting Singapore.

The stock fell 2.2% to $1.10 at 2:30pm (0630 GMT).