SINGAPORE Singapore's two multi-billion-dollar casinos bear evidence of China's economic recovery: high rollers returned in force last quarter to the resorts run by Genting Singapore Plc (GENS.SI) and Las Vegas Sands Corp (LVS.N).
The revival in the lucrative VIP segment reversed a pattern that analysts had observed in recent quarters, where whenever one company saw a rise in VIP business, the other usually reported a slowdown, suggesting that the two casinos were fighting over a limited pool of punters. But over the last three months of 2012, both Sands and Genting reported strong year-on-year growth in that segment.
Genting's results, released late on Thursday, showed a 56 percent jump in its premium segment. Sands, whose earnings were released on January 30, posted a 53 percent increase in what it calls rolling chip, a gauge of gambling activity in high-stakes VIP rooms.
The jump in the high rollers business was accompanied by a sharp rise in credit to gamblers - for Genting, receivables were up 33 percent from a year earlier to S$960 million ($775.69 million) - which some analysts cited as cause for concern because it could lead to an increase in bad debts.
"It is a chicken-and-egg thing. So, the more you gamble, the more credit I'm willing to extend to you," said Carey Wong, an analyst at OCBC. "It is a self-fulfilling thing."
"They made no secret that a lot of the VIPs are also Chinese. So, with the more stable political climate and hopefully, economic climate, then you see more Chinese high rollers coming into town," said Wong.
China typically accounts for at least half of the VIP gamblers in Singapore, Asia's second-largest gambling market after Macau, with the rest coming primarily from Indonesia and Malaysia. Singapore's casino business had slowed earlier in 2012 when China's economy cooled.
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Citigroup analyst George Choi said he was surprised Genting was able to get "more and more new VIP players".
"In the past quarter, we have finally seen a recovery (for both operators) and my guess is we have hit a bottom," said Choi, who upgraded his rating on Genting Singapore to "buy" from "neutral" on Friday.
Singapore has only two casinos, which opened in 2010, but they are among the most lucrative in the world, with profit margins as high as 50 percent. Both are part of what Singapore calls integrated resorts, connected to shopping and entertainment centers that pad the gaming profits. The two casino operators were hit by a slowing market and tighter local regulations in 2012.
Local citizens must pay a levy to enter the casino, part of Singapore's effort to curb problem gambling, so attracting foreigners is especially important - and big-spending VIPs are the prize. These gamblers are lavished with perks such as stays at luxury villas, fine dining and casino credit.
Genting said it was comfortable with the amount of credit it had extended, but Sands called Singapore "the most challenging credit market" for collecting on debt, which suggests the companies could face bigger write-offs in the coming quarters.
"You're giving away a lot of credit to a smaller number of people, and you don't have the legal remedies you have here in the U.S," Robert Goldstein, president of global gaming operations for Las Vegas Sands, said in a conference call accompanying the company's quarterly results last month.
Genting is stockpiling cash as it looks for regional acquisitions. Japan is high on its wish list if gambling is approved there, as many analysts expect. Genting, however, said it does not expect any significant spending in Japan for at least two years.
Choi said Genting is one of the favorites if and when Japan decides to legalize casino gambling.
The company's cash pile rose to S$4.4 billion as of the end of 2012, up from S$3.3 billion a year earlier. With most of the outlays to develop its Singapore resort - including a marine life park, an amusement park and high-end hotels - largely done, its cash pile will likely continue to increase.
It is closely looking at acquisitions over the next 12 months and is interested in significant regional deals, company officials told analysts in a teleconference late on Thursday. Genting said in a statement the group is actively pursuing targets in its core gaming, hospitality and leisure sectors.
Genting Singapore's shares have been the best performer in the index .FTSTI over the past three months, up 27 percent after underperforming last year.