CFA Society Singapore
SINGAPORE (Nov 27): Fitch Ratings has identified Singapore to be among the markets vulnerable to weakness from China's VIP gamblers, resulting in a flat VIP segment next year.
This is considering how Singapore’s gross gaming revenue (GGR) declined 3% on-year in 1H18 after growing 14% in 2017, with the recent weakness largely driven by the slowing VIP segment across Southeast Asia and facing higher competition from expansions in the Philippines as well as other newer markets.
In all, Fitch assigns a “stable” sector rating outlook on global gaming growth for 2019 despite an anticipated deceleration of global gaming growth as China’s economy slows down, European regulations stiffen, and the near-decade-long recovery on the Las Vegas Strip tapers.
Given China’s growing middle-class, it considers China’s market as underpenetrated, and is forecasting mid-single-digit growth to reflect a long-term positive outlook.
“Our forecast is tempered by the tougher y-o-y comparisons and the risk of a weakening Chinese economy. Fitch forecasts 6.1% 2019 China GDP growth, a slowdown from 6.6% forecasted 2018 growth,” says the ratings agency in its latest 2019 Outlook: Global Gaming report.
In Asia Pacific, Fitch thinks ratings are at already-elevated levels of capex and VIP-related volatility.
While the agency has identified Macau as particularly vulnerable to a Chinese slowdown, it believes the opening of Grand Lisboa Palace, ramp-up of MGM Cotai and Morpheus tower at City of Dreams, and new infrastructure projects will contribute to global gaming revenue (GGR) growth in the long run.
“Macau’s VIP segment, which has fueled much of the growth in 2017 and early 2018, slowed with the mass market as the primary growth driver over the past few months. We expect this trend to continue into 2019 as VIP is more sensitive to the economic and credit conditions on mainland China,” says the agency.
In Fitch’s view, fundamentals for the Malaysian gaming market remain stable, underpinned by a domestic mass-market focus at Resorts World Genting.
“Visitor arrival growth will be driven by new attractions and the 2019 opening of the 20th Century Fox theme park. However, the proposed revision of casino duties to up to 35% of net collections announced recently will likely pressure margins at Malaysia’s sole gaming operator, Genting Berhad,” notes Fitch.
Going forward, Fitch opines that the growing US economy will continue to shield its regional operators from market saturation, an ageing demographic and growing competition in the form of gambling and entertainment alternatives.
It believes most US gaming operators now have their leverage profile growth within target ranges as they focus more on returning capital to shareholders.
Elsewhere, the agency highlights that recent consolidations in EMEA (Europe, the Middle East and Africa) have put bookmakers on a “more solid footing” to absorb adverse regulatory changes, such as the UK’s potential tax hike for online gaming in April 2019.
One wildcard to pressure ratings, however, is a ramp-up in debt-financed mergers and acquisitions (M&A) especially for US and EMEA.
“For Australian operators, resilient underlying domestic demand and a favorable regulatory environment continue to be the main factors supporting our expectation of stable cash and EBITDA generation in 2019,” adds Fitch.