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
