Asian VIP market

There are a lot of discussions about how much market share Singapore can take from Macau. Not much, we believe

Asian VIP revenue	mil. US$
Las Vegas Strip	1,260
Macau	9,500
Australia	432
Korea	493
Malaysia	300
Total	11,985
source: CLSA Asia-Pacific Markets

We estimate the Asian VIP market at US$12 billion—mostly from Macau, whose VIP market comprises mainly visitors from the mainland China, Hong Kong and Southeast Asia. The latter represents a huge potential market for Singapore.

There is huge amount of pent-up VIP demand in Asia—from Singapore, Indonesia and other Southeast Asian countries. And, again, there are many reasons to visit Singapore (business, family, etc) even before the introduction of casinos. Macau does not appeal to many of these nationalities. Meanwhile, Melbourne has a well-established casino but is 10 hours away from most Asian cities. Las Vegas is also too far. Genting is not high-end enough to attract many non-Malaysians.

So, which markets will lose share? Macau’s VIP revenue is captive to the city itself, given currency-related controls and issues relating to VIP players’ creditworthiness. For example, most Chinese VIPs are unable to move substantial capital outside China and hence are dependent on junket operators to provide capital. While it is difficult to quantify, we understand that about 75% of VIPs in Macau originate from China.

Macau has a high gaming tax rate of 39% versus only 12% in Singapore. This is huge and suggests that casinos in the island-state could afford to pay a much higher commission to junkets to bring players from China. However, we expect the higher rate to be available to limited parties—only those that would consider travelling the extra distance to Singapore in the first place.

We believe a large chunk of Chinese players will prefer to play in Macau for cultural reasons, comfort and the close location. The two Singapore integrated resorts have invested huge amount of capital, giving rise to substantial debt. They will be eager to generate adequate returns, lowering the chance of higher commissions. We believe the two operators may agree on a set of junket commissions. This is already happening in the more challenging Macau, where are they are six concession holders and 32 casinos.