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Slightly below consensus quarter due to lower hold but VIP volumes were up 40% sequentially and Mass volumes grew as well.

  

HIGHLIGHTS FROM THE RELEASE

  • Singapore IR contributed revenue of S$775.2 million and Adjusted EBITDA of S$389.8 million
  • "The improvement in the revenue is substantially contributed by the increase in the volume of premium players‟ business with significant contribution from USS (Universal Studio Singapore) and the hotels.
    • There was a daily average of around 8,300 visitors to USS with an average spend of S$85 per visitor.
    • RWS hotel occupancy for fourth quarter of 2010 was 79% with an average room rate of S$294."
  • "An improvement of the margin from the third quarter of 2010... is attributable to the increase in revenue. It is, however, diminished by a lower luck factor in the VIP business compared to the third quarter."


CONF CALL NOTES

  • Awfully pleased with the way they wrapped up 2010
  • With the sale of the UK business, the management has been able to focus on RWS
  • Grew every part of the business in 4Q however, Lady luck showed less favor but was still in the range of 2.8-3.0%
  • VIP segment  - which has powered ahead with over 40% growth in volume.  Recently added 2 new aircrafts to the Group and are adding more amenities.  Their VIP GGR revenues were 60% of total.  RWS market share increased to 58% for VIP and 52% overall.
  • They are planning many exciting events - Janet Jackson concert kicked off the year
  • BattleStar Galacitica just opened. Journey to Madagascar is due to open soon and will be accompanied by the opening of 2 Robochun restaurants.  The new attractions should attract new visitors.
  • 1,400 slots on the floor including 360 ETGs and 580 tables
  • Beginning to see FIT business take shape with 50% of the USS visitors being FIT guests
  • 1,300 rooms now open
  • Hosting 460,000 guests and hosted 1500 events
  • Transportation to their resort got even better before CNY - Sentosa People Mover - moves 8,000/people per hour and stops in front of their Resort
  • 2011 will be a year where they continue to build on their results.  Chairman expects to keep pulling bunnies out of the hat.

Q&A

  • What was the increase in RC Volume sequentially?
    • 40%.  Q3 VIP hold was on the high side while the Q4 was on the bottom end of the expected range
  • Seasonality trends across Q4?  
    • They are still continuing to learn about their seasonality.  They just started operations on Feb 14th so they have yet to experience a full year of apples to apples operations (with a competitor in the market).
  • Mass market grew sequentially as well
  • There will continue to be a lot of pre-opening costs in the business as they continue to build out Phase 2.  There will be a substantial amount of pre-opening expenses in 2011 as they look to open more of USS and the Marine Park.  These costs will be significant.
  • Was the commission rate higher in the quarter - ie why was the net revenue only up 6%?
    • No, it was all because of lower hold
  • Almost all the slots are outright purchase, only a few are on a lease basis
  • Cost of the machines ranges from US$22k to $35k US. So far, they have changed out very few machines.
  • Seems like the poor hold had a significant drag on the quarter, what would be the normalized EBITDA?
    • Hold rate is not as good as they want it to be.  MBS held at 3.11%; they held below that.
    • EBITDA would have been 10-15% higher if they held more normally....Hope that they will see better luck for 2011. There is good evidence of that occurring.
  • Jan trends?
    • Comfortable achieving internal budgets for the year
  • VIP contribution of 60% based on GGR - how about on a net revenue basis?
    • 51% on a net revenue basis
  • VIP and Mass tables.  Going forward? 
    • Still have capacity to add some more tables. They have 580 tables but on average, they are only averaging 460 tables in operation
  • Good evidence in January that they picked up on their luck factor. Seasonality issue is difficult to answer given the immature nature of the business.
  • Junket approvals and how do they see the RC business pick up further
    • Some junkets should be licensed this year.  They have no visibility on when that will happen.  When and if it does, it will help them with the business
  • For the year, their VIP win rate has been within the acceptable range of the normal win %
  • Employees at the RWS - 13,000  of which 10,000 are permanent
    • Tracking at 7-15% turnover in the employee base
  • Receivables are up 40% as well. Has credit been a direct driver of performance?
    • They need to give credit directly to the customers - so they will continue to do that until junkets come in. They are pretty comfortable with the level of receivables given the level of revenues generated
  • Any impact from the tightening in China?
    • So far they have not seen any material deterioration and repayment rates have been good
  • Some talk about CRA regulating shadow junkets in the market?
    • No comment
  • Breakdown of gaming and non-revenue?
    • 80-85% was gaming (on a net basis)
  • Have not seen any direct government action to try to prevent locals from visiting the IRs
  • Margins have been more or less the same in the 4Q so far
  • No change in rebate rates
  • What % of employees are foreigners?
    • Just under 30%
    • New levy comes in Sept 2011, and another increase in 2012. It will have some impact on their payroll but not too heavy.
  • Malaysian bus program continues to be strong. Not sure if it was higher quarter over quarter - maybe only slightly.  Malaysian school holidays impact them.
  • Excluding pre-opening expenses, what have costs been doing?
    • They changed their way of reporting Adj EBITDA to match the way their competitors do it - so pre-opening expenses are not in EBITDA
  • Player rebates are relatively flat sequentially at 1.2%.
    • It's exactly the same QoQ
  • Why was the financing cost so high this quarter?
    • In December they recognized early interest cost of new debt - so there was also some accelerated amortization cost of the new financing... all of that is included in the financing costs.  2011 run rate will be lower.
    • Just refinanced their loan last week.  S$3.5BN.
  • New construction will cost them S$700MM
  • Their actual tax rate was higher than the Singapore tax rate due to the refinancing
  • Competitive environment regarding market share?
    • Will compete sensibly to maintain market share. Comfortable with their market share and will try to make as much money as possible
  • They cannot pay a dividend in 2011 - since they need to show a profit on the balance before doing so. But they will be CF positive this year.
  • Appetite for growing the VIP business?
    • Will grow only as far as they feel comfortable extending credit. 
  • 1/3 VIP tables, 2/3 Mass
  • USS is EBITDA positive
  • How did they manage to outperform their competitor by such a margin on VIP RC? Bulk of their earnings should be coming from overseas.  They are working very hard to grow that business.
  • Since they are already open, they can not capitalize any pre-opening expenses but they wont impact adjusted EBITDA
  • 40% was non-VIP this quarter. This suggests that Mass declined QoQ.
    • which is a function of the win %
  • Impact of their aircraft on their margins?
    • Just started flying the first one so will give an update next quarter