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Morningstar | Genting Singapore's Expansion Plan Is Necessary but Expensive

Genting Singapore operates one of only two casinos in Singapore, with about 40% market share. The casino is part of Genting Singapore’s Resorts World Sentosa, or RWS, a world-class integrated resort with theme park, hotels, and restaurants. RWS provides substantial nongaming revenue (around 25%-30% of total revenue) to Genting Singapore, having attracted more than 20 million visitors since opening in 2010. We believe RWS will continue to cement its position as a desirable destination for tourists and gamblers in Singapore, and this should ensure stable earnings growth for the firm. Singapore is Asia's second-largest gaming market and the world’s third-largest.Genting Singapore's 30-year casino license, granted by the Singaporean government, will expire in 2036. Meanwhile, the exclusivity provision has been extended to 2030 in 2019, removing concerns about the government issuing an additional casino license in Singapore in the near to medium term.Although casinos enjoy strong cash flow, integrated resorts are also capital-intensive businesses, as maintaining their appeal requires significant and regular reinvestment. The firm has announced a SGD 4.5 billion expansion plan for RWS in 2019. The project is expected to be completed within five years starting from 2020. We think this is timely to sustain RWS’ long-term growth and fend off regional competition.There are also opportunities to expand into other gaming markets in Asia, such as Japan. We see expansion into offshore markets as a potential earnings catalyst for the firm. The firm expects the bidding process for Japan’s Integrated Resorts to start in the second half of 2019. Although Genting's regulatory experiences in Singapore serve as a big advantage in getting a license in Japan, we think competition will be steep, but its resorts and theme park attributes should still make it a strong contender.