As with games of chance, it came out of the blue. The Casino Regulatory Authority (CRA) of Singapore said on March 22 it had issued licences to two “International Market Agents”, opening Singapore’s casinos to the system of junket agents that prevails in Macau, the world’s largest gambling market. The two IMAs will be based at Resorts World at Sentosa, owned by Genting Singapore, whose shares spiked as much as 8.6% in trade the next day.
Analysts have scrambled to put a number to how much this long-awaited move could bump up Genting Singapore’s earnings by. However, it is proving to be difficult. For a start, not much is known about these two junket operators, identified as Huang Yu Kiung and Low Chong Aun. According to UOB KayHian, the first hails from Sarawak while the second is from Penang. Both are believed to specialise in supplying mostly Malaysian high-rollers to Malaysia’s sole casino at Genting Highlands.
Ben Lee, managing partner of iGamiX Management & Consulting, a Macau-based consultancy, told Inside Asian Gaming, a Macau-based publication, that his company “has had direct dealings with these gentlemen”. “Mr Huang is probably in the top three in terms of junket operations in Malaysia. He drives his customers to Resorts World Genting, Cambodia, and now Singapore. Mr Low is probably somewhere in the top 10 [in Malaysia] and has a very similar profile to Mr Huang. Both have had very little exposure to junket players outside Malaysia,” he says.
NO CHINESE DEBTS, PLEASE
By licensing just two Malaysian agents, it is clear that Singapore is trying — for now — to control the flow of junket-funded big punters from China. Junket operators are pivotal in Macau. According to industry estimates, there are more than 190 licensed junket operators in Macau. Of these, the top 40 account for a staggering 80% of total VIP gambling revenue.
The VIP junket operators have a network of agents, known as sub-junkets, who are usually well connected in China and are familiar with the credit history of their clients. The sub-junkets receive a commission from the VIP junket operators for giving credit to gamblers and are responsible for collecting debts. In Macau, agents typically operate on a two-week debt collection cycle.
The boundaries set by the Singapore regulator are predictably stringent. The newly licensed IMAs are not allowed to target Singapore citizens, only foreign high-rollers. They are also not allowed to share commissions with casino operators or unlicensed persons, to prevent sub-junkets. The licence is only for a year and will have to be renewed. As it is, the CRA had already rejected 12 other applicants.
There is good reason to be cautious. As brokerage Maybank Kim Eng points out, gaming debts are not enforceable in mainland China. In Singapore, the two casinos are locked in a number of contests over unpaid debts. For instance, Marina Bay Sands, the other casino resort besides Genting Singapore, is suing five patrons for $7.5 million over alleged outstanding gambling debts.
Moreover, as Lee of iGamiX points out, there are no real channels currently to transfer renminbi going into Singapore for gambling. “Malaysian junkets already have funds transfer channels between Singapore and Thailand — consisting of the Indian moneychanger network that dominates these three countries. The funds channelling network in China, Macau and Hong Kong is completely different and made up predominantly of southern Chinese [participants],” he explains.
ESTIMATES VARY WIDELY
In the meantime, analysts and industry experts are being kept busy trying to assess the impact on Genting Singapore and the gambling market in Singapore. Estimates vary widely. UOB KayHian, for instance, sees only “moderate impact” on Genting Singapore. The brokerage estimates that junket licensing would probably expand the gaming industry’s VIP rolling chip volume by less than 5% for 2012. This is based on the view that the “smallish” size of the two IMAs suggests they would have limited financing capabilities. VIP rolling-chip volume is used by casinos to measure the volume of VIP business transacted and represents the aggregate amount of bets high-rollers make. UOB KayHian has not changed its earnings forecasts for Genting Singapore despite the entrance of the IMAs.
CLSA Asia-Pacific, meanwhile, expects VIP rolling-chip volumes to take on a new trajectory of growth. It believes that junket agents will reinvigorate Singapore’s gaming market, which has been otherwise labelled as “flatish” and “boring”. The investment bank forecasts that Singapore gaming revenues will grow 15% to US$6.9 billion ($8.7 billion) in 2012. Within that, VIP revenue is expected to grow 11%.
Also sounding a bullish note is Maybank Kim Eng. On its “rudimentary calculations”, it says that Genting Singapore could see an 18% to 26% boost to earnings from the licensing of the IMAs. The brokerage anticipates that Resorts World at Sentosa will see stronger growth in the VIP segment and regain its market share, which it had lost to Marina Bay Sands last year. More over, it points out that Genting Singapore could leverage on the experience of its parent, Genting Bhd, which has 40 years of dealing with Malaysian junket operators. The licences are definitely a very positive development, the brokerage says.
Putting a number to Singapore’s nascent gambling market, which is only into its third year, is notoriously hard. Almost every analyst — as well as seasoned industry players — underestimated just how popular the casinos would be and just how large the market would become. In a short span, Resorts World at Sentosa and Marina Bay Sands have become the most profitable casinos anywhere in the world, helped in part by the low tax regime in Singapore.
Moreover, encouraged by the award of two junket licences, the market is now looking forward to more agents coming into the market. Maybank Kim Eng understands “that up to 17 more may be approved in the near future”. That should underpin investor interest in Genting Singapore, which despite the recent run-up in its share price, still offers a little more upside. As UOB KayHian points out, at 10.2 times on an EV/Ebitda basis for FY2012, the stock is trading below its peers listed in Macau. On consensus forecasts, the price target for Genting Singapore stands at $1.89, with more optimistic targets stretching to $2.10. The stock closed at $1.73 on March 28.
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