Why only a 5% revenue boost from new Genting junkets

PhillipCapital gave a conservative estimate since the operators are small players who will probably take it sure and slow.

Singapore will be closely watching for any misstep, so the newly approved junket operators for Genting's Resorts World Sentosa will be cautious rather than aggressive. The growth contribution could also have been higher if the approved junket operators came from Macao instead of Malaysia, with the former having close ties to mainland China's super rich gamblers.

Here's more from PhillipCapital:

Casino Regulatory Authority of Singapore (CRA) had approved licenses to 2 Malaysian junkets or International Market Agents (IMAs) as deftly coined by the agency. The validity of these licenses is only 1 year and subjected to renewal.

How do we view this?
a. The development is ground breaking as previously, no one was sure if CRA will allow junket operators in the Republic. Now that licenses have been approved, we believe more will be awarded as long as they clear the onerous checks.
b. It is also a game changer for gaming companies in Singapore. Junkets bring in customers, hence more revenue. At the same time, they help to bear the cost of extending credit to high rollers.
c. However, the IMAs approved are small and from Malaysia. We believe real clout lies with the Macao junkets as they are the ones with excellent relations with the uber rich from China.

Investment Actions?
We upgrade Genting from Neutral to Accumulate with target price of S$1.89. Previously, we said the upside potential will depend on a. Junket approvals and b.Announcements of new projects. One of the two catalysts is now in motion

The Gaming revenue from the 2 casinos was about S$5.6 billion in 2011. In forecasting our 2012 gaming revenue, we expected an increase of about 10%. With junket operators approved, we raised this revenue forecast by 5%, to 15% growth. It is a very conservative growth as we believe the newly minted IMAs are likely to be cautious in their first year of operation as they learn to navigate the regulatory landmine.

Furthermore, as we mentioned, the real clout is with Macao operators and our estimate (~20%-25%) would have been more aggressive should they be approved. In terms of market share, RWS lost out to MBS in 2012 with the former garnering just 47% of the market. With IMAs, we estimate RWS to plug the gap with a 50-50 split.

The Competitor’s next move
With licenses dished out for IMAs to operate at RWS, MBS who has been on the sideline watching the developments closely will now actively file applications for junkets too. If they support the same ones operating in RWS, then RWS will not have significant first mover advantage. However, if MBS is supporting a different set of operators, given the time CRA takes to vet the applications, RWS may have a lead time of 1 year. During this period, we expect RWS to gain market share in the VIP segment. Coupled with its luxurious rooms, RWS should also find it easier to defend its VIP turf.

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