SINGAPORE (Aug 22): UOB Kay Hian is maintaining its “buy” rating for Genting Singapore, but with a lower target price of 84 cents from 88 previously as the casino operator is hit by lower mass market gross gaming revenue (GGR) at its Resorts World Sentosa (RWS) integrated resort.

While VIP gaming revenues had already slowed down since 2014 with China’s slowing economy and graft crackdown, analyst Vincent Khoo noted in a Monday report that mass market gross gaming revenue had followed suit in 2QFY2016, breaking from its steady growth trend from 2QFY2014 to 1QFY2016.

Both RWS and Marina Bay Sands saw similar declines and Singapore’s mass market gross gaming revenue for tables and slots fell by 7.6%, the “most severe quantum drop since the opening of the dual casinos in 2010”, according to Khoo.

Khoo attributed much of the decline in the mass-market segment to the slowdown in the oil and gas industry, which is experiencing manpower cuts and financial restructuring. In 2015, the O&G industry contributed about 5% to Singapore’s GDP and “consultants estimated that 15,000 jobs related to the O&G industry in Singapore may have been lost in the past year”, according to Khoo.

“Notably in the past, professionals in the O&G industry are known for their lucrative pay, and quite a few O&G related individuals ranked among Singapore’s wealthiest individuals. Hence, it is perceived that up until recently, gamers from the O&G industry disproportionately featured higher spending power and accounted for the premium mass segment,” writes Khoo. “The same analysis also applies to the O&G professionals in Malaysia, with Malaysia being a key market for Singapore’s casinos”.

Furthermore, higher tourist arrivals have done little to influence gaming numbers. Singapore’s tourist arrivals rose 11% in 2Q16, with a 65% increase in mainland China’s tourists and a 4% increase in Southeast Asian tourists. Khoo believes these tourists are “low-yielding players”.

To that end, Khoo expects the weakness in the mass market GGR to mirror the stress in the O&G industry, and recovery for both casinos will be slow.

Shares of Genting Singapore are trading at 76 cents. — theedgemarkets.com.sg

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