Learning From Genting's Excellent Strategy

First and foremost, I am not a big fan of Genting Group, in particular, I think its corporate governance and transparency should be a lot better. The top compensation packages for certain people are too outrageous for my cup of tea. Its akin to running it like a family owned unit rather than a publicly listed concern.

That aside, when they do something well, we should applaud and try to learn from it. It was a far fetched idea when Genting was bidding for one of the IR slots. Surely they were in stiff competition where global operators with "more experience" in transplanting a lavish IR were around.

The other thing that I counted against Genting was their tacky taste in design and fit outs. I mean, look at Genting Highlands. Even the new resort at Sentosa has some "cringe worthy" design flaws. Call it taste, class or ambiance, either you have it or you don't. You may be able to buy the most expensive design brains, but when top management has the right to overrule and make changes, you get the watered down version.

To succeed where others failed. In hindsight, this is the key to winning the Sentosa IR bid. Track onto what the client really wants, tap their insecurities, concerns and expectations. The thing is, most clients will NEVER tell you their real insecurities and underlying expectations - which inevitably will be what they finally base their decision making process on, but most of the times are never enunciated. Instead of just presenting what you think is a lavish, mega entertainment, modern, high-tech concept ... did anyone really address Singapore's insecurities, concerns and expectations?



How did Genting do it? They had one advantage, being close neighbours, we all understood how Singapore think and operate. Kiasu and kiasi, though often bandied around as jokes, have more truth in them than meet the eyes.

Their main concerns: must more than match the glitz of Macau, complete with being a super entertainment and shopping mecca for MICE as well. That was accomplished with Sands. You don't need two of that, hence the Sentosa IR has to be different than the one in the city.

Singapore concern is not Las Vegas, Australia or Monaco ... its Macau/HK. The Sentosa IR was an opportunity to match or take a large stride to overhaul HK, or improve on what HK offers. HK has Disneyland, so Universal Studios is a good match. The fact that Disneyland has an on/off ploy to operate in Iskandar only played into Genting's understanding of Singapore's concerns. You don't need another Disneyland, so close to HK's. It has to be different.

The other thing was Ocean Park in HK. Walla ... Ocean Park being pretty dated now would now be usurped by Sentosa's "world's largest oceanarium".



The third concern would have been the casino in Genting Highlands. You want outright cannibalism with the IRs or someone who will work harder to make the IR a success even though there is another casino a few hours away. Better to work with the "enemy" than to fight them tooth and nail.

Developer Resorts World Sentosa said it will open the "world's largest oceanarium" in the middle of next year, which is expected to lure tourists away from the venerable Ocean Park. After taking on Hong Kong Disneyland with Universal Studios Singapore, the Lion City is set to unveil a rival to Ocean Park.

Marine Life Park, an eight-hectare home to 700,000 fish inside a 30-million-liter lagoon, is on track for Sentosa's phase two expansion, which also includes a maritime museum, an aquarium and two hotels. Ocean Park covers 87 hectares but its Grand Aquarium contains only 5,000 fish of more over 400 species. The new marine park was revealed at Friday's grand opening of Universal Studios Singapore, one of the resort's anchor attractions on an island off the southern coast.

Its official opening came nine months after its soft launch and was attended by former American Idol judge and now X Factor USA judge Paula Abdul and iconic Hong Kong actress Maggie Cheung Man-yuk.

"The advantage we probably have here is that the Universal Studios is in the same resort as the Marine Life Park," said Sentosa executive chairman Lim Kok Thay. "When compared with Hong Kong, we actually have two in one [attractions]."

He admits that Marine Life Park "shares a lot of similarities in concept" with its competitor in Hong Kong, adding the resort learned a lot from the Ocean Park group in particular. It is in the same HK$41 billion integrated resort with the movie theme park and a casino, which was developed by Genting Singapore.

The city-state's concentrated effort to lure tourists away from neighboring travel destinations such as Hong Kong has been paying off. Last year, it welcomed a record 12 million visitors, a year- on-year rise of around 25 percent. Since March, Universal Studios Singapore has attracted about two million visitors, of whom 75 percent are foreigners.

The 20-hectare theme park now has 21 rides and shows in seven themed zones, the newest a river boat ride. It launched the world's tallest dueling roller coasters, Battlestar Galactica, in February. Universal Studios Singapore, the second of its kind in Asia after the one in Japan, covers an area of 25 football fields - smaller than Ocean Park and the world's smallest Disneyland in Hong Kong.

Ocean Park welcomed the marine park, saying it would generate competition and attract more tourists to Asia.

Viability Of IR "Visitor Projections" Questioned By Citi

It is always good to take the other side of the coin when everybody is in favour of a certain thing. Needless to say, there appears to be a euphoria like thingy being built up surrounding the two casinos as the date of their opening draws closer. Citigroup research has drawn attention to the viability of some of those projections, in particular to the number of visitors. My views in color.

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UNDER QUESTION

The $100 entrance fee is a sticking point as it could prevent both casinos from developing strong, recurring local mass market clients. In a report on the prospects of Las Vegas Sands (LVS), which owns Marina Bay Sands (MBS) here, Citi said that assuming Marina Bay Sands contributes 20 per cent of LVS's total Ebitdar in its first full year, every eligible Singaporean will have to go to the casino five times a year and spend more then the average visitor to Macau. Why cite Las Vegas Sands report, naturally they will project lofty figures. I doubt many research houses are looking at the 15-16 million visitors a year as their base pricing. Take it down by 20%.

We liken the current sentiment towards the integrated resort to the Macau gaming boom in 2006/07 and urge investors to not be left holding this parcel when the music stops,' added Citi analyst Anil Daswani. Mr Daswani acknowledges that his forecast of 20 per cent Ebitdar from LVS's Singapore operations is about 30 per cent below consensus. But he also added: 'If current market estimates are believed, then the Marina Bay Sands will be the most profitable casino in the world in its first full year of operations despite Singapore being a fledgling gaming market.'Singapore is an untested market as far as gaming goes. Mr Daswani, obviously is from india and not a born and bred Singaporean. If you examine gaming habits by virtue of official available data, you will get a slanted view. If you rely on data from Singapore Pools, the turf club, football betting and 4D - the official data is probably representing 10%-15% of actual betting that takes place. About the only thing that is officially correct is from the Singapore Pools (lotto like) which illegal syndicates cannot touch. Horse racing, in Singapore about S$700,000 to S$1.2m is wagered every race, officially. People in the know will not gasp when I say the real figure is at least 15x-20x that figure, you do the math. The figure is the same, maybe even higher for footballing bets. 4D is still rife in illegal quarters but may have toned down somewhat. Still the illegal pool should be at least 5x-10x the legal pool. So, with that in mind, do you wish to change your view on Singaporean gaming habits?

Whether Singapore leans towards the Las Vegas model (which counts on non-gaming revenue) or the Macau model (which relies on VIP gamers), will have a significant impact on revenue generators here, and ultimately, the success of the IRs.

Based on Citi's analysis, to achieve US$1.56 billion in revenue each, both IRs will have to attract a combined total of 31 million visitors annually. This implies that 3.2 million eligible Singaporeans (over 21 years) will have to visit either casino a total of five times. An additional 1.4 million visitors from Johor will have to visit either casino twice a year and 12.2 million tourists will have gone at least once with everybody betting and losing at least US$100.

Citi highlights that the US$100 discretionary spending is almost twice that typically spent at Genting Malaysia's casino (US$53) and higher than the average spending at LVS's Venetian Macau (US$84). 'This does not include the additional $100 entry levy that each Singaporean must pay when they enter the casino,' added Mr Daswani. Haroo, ... Its S$18 to get into the Singapore Zoo, its fucking S$29.50 to get on the bloody Singapore Flyer and that's just a 10 minute thingy. So what's S$100???

He also said that while the market is expecting Singapore IRs to achieve Net Wins Per Table in line with those achieved in Macau, 'we cannot justify these assumptions just as we cannot believe that Singapore in its first full year of operations will equate to 30-40 per cent of the market size of Macau in terms of gaming revenue or 70 per cent plus of the entire Las Vegas Strip'.

It is not just gaming that is at risk. Citi estimates that room rates at MBS will be around US$143 with occupancy at 78 per cent. However, it noted that there will be 18 per cent of new hotel room supply added to Singapore's total hotel room supply next year.

But its the $100 entrance fee that is a sticking point as it could prevent both casinos from developing strong and recurring local mass market customers. 'In Melbourne and Macau, a key dynamic of each market is that the local Australians and Chinese dominate their respective mass market division at the casinos. If Singapore wants more mass market type casinos to succeed, they will have to successfully attract the locals to gamble regularly,' said Mr Daswani. At MBS, Citi expects 51 per cent of total gaming revenue to come from the mass market vs 42 per cent at Venetian Macau. While Citi has focused on many downside risks, others have been more optimistic.

In a report last month, CIMB estimated that Singapore could have a casino market worth $5.1 billion. Accepting that predicting market size is 'still hazy', CIMB nevertheless used a ratio of casino revenues-to-legal gambling market in Malaysia to gauge the relative market size of the casino market versus the non-casino gambling market. Applying this ratio to Singapore, and cognisant that this could underestimate the viable casino market, CIMB found that in 2008, Singapore's tax authorities collected $1.78 billion of taxes from gaming activities. Assuming a 20 per cent tax rate, the legal gaming market in Singapore is estimated to be about $8.9 billion, it said. CIMB also pointed out that a recent study estimated that 58 per cent of the population in Singapore are gamblers and each gambled up to almost $3,300 per person. 'These data points support our estimation of a $9 billion gaming market size to tap', it concluded.

I am not dumping Citi's comments down the drain but there are a few areas of assumptions which are not all there. Many of the reports out there did pretty well in the rigorous research. Why I think both casinos will do well (and that the Sentosa one will actually do better):

a) just the two of us, no more ... no matter how you cut it, its a duopoly

b) now leverage that duopoly to eat into the massive amount of illegal gaming in Malaysia and Singapore (think of betting stations within the casinos to take bets on Singapore Pools, 4D and horse racing... races being beamed live). To eat into illegal market, it has to be more convenient, you want the same gaming dollar to travel more, you win here, you bet there, etc...

c) the Singapore government's support, they have to be a success, hence you can be assured that if there are any shortfalls in visitors or structural issues hindering profitability, there will be suggestions and ways to get around them swiftly, the two IRs viability and success reflects critically on the government's economic planning and value add industry convergence strategy

d) excellent infrastructure and connectivity, the rise and rise of low cost airlines, the new terminal for them and the connectivity with AirAsia, Firefly etc... bodes well for attracting and pushing through all visitors to at least stopover in Singapore whenever tourists pass through the Asia-Pacific region

e) The underlying difference between Macau and Singapore is a bit like Geylang and Bukit Timah, or if you prefer, like comparing Kings Cross and Darling Harbour. Despite the glitz and glamour on the outside and the facade, Macau is still a breeding ground for wild cowboys left over from triad days, there is still the underlying seediness of illegal money lending, prostitutes hanging by the doorways and and entrances, there is still the raw naked feeling that your skull could be cracked by a bad tempered loser, etc... That's why the two casinos in Singapore will be considered as "safe", where if you win big, you won't have to fear whether you can get out the casino or the island or your room unscathed. Its a bit unfair for me to trash Macau but water it down a little, you get at the truth. Safety, convenience, rule of law, upright police force ... mean the two casinos deserves a premium, and will get that premium from gamers. If you are a regular gambler (say 4 times a year to an international casino), would you bring your family with you to Macau (safety, healthy activity issues...) or would you go to Singapore?

It is fine and well to look at figure projections, room rates, occupancy rates, net revenue per punter, theme park revenue per visitor, etc... but you must first really get behind the properties and understand the nuances of the people, the place, the environment, the thinking, the mindset and psychology of the people before the estimates make good sense. The assumptions and how persuasive are the underlying assumptions will lead to how strong is the opinion of whether the views are too optimistic or pessimistic. I found nothing much of value or essence in the underlying arguments of Citi's view.


p/s photo: Gaile Lai