Rigorous statistical analysis suggests that Singapore’s weakening macro environment could impact casino revenues.
THE CALL TO ACTION
We’ve found several macroeconomic metrics to be correlated with Singapore gaming revenues. Given the few number of data points – Singapore is still a young but mature gaming market – it is too early to quantify each metric’s significance. Considering the discretionary and cyclical nature of mature gaming markets worldwide, LVS and Genting Singapore investors should be worried about Singapore's deteriorating macro environment.
THE MACRO SETUP
The Singapore government recently released a slew of macroeconomic data for Q2 and it’s difficult to find any ray of positivity. Q2 GDP contracted (QoQ) for the 1st time in 7 quarters. Retail sales (ex motor vehicles) are trending -2% YoY (April-May period). Watches/jewelry sales (seasonally adjusted) fell 8% (April-May period). On the housing side, Singapore private residential prices fell again in Q2 following the Q1 decline. The results are even more extreme for Singapore new private home sales which fell 68% in the month of June. CPI also ticked up in Q2 relative to Q1.
The Singapore Dollar remains higher versus a majority of its cross currencies in Q2. As Genting mentioned several times on its conference call, a stronger Singapore dollar is a headwind for the mass business due to a lower bet per trip.
We’ve run the regressions and the only thing we’ve definitively concluded is that there is not enough revenue data points to formulate a working model. However, we can derive a very high R square using multiple macro variables even though the t-stats (measuring statistical significance) among individual variables are mostly fairly weak. Again the low t-stats are more of a function of a limited dataset.
Among the most statistically significant and positively correlated variables are private residential prices, visitation, and watch/jewelry sales. Negatively correlated variables include CPI and currency. Unfortunately, none of these variables are moving the right way to support casino revenue growth. Fortunately, all of these data points, with the exception of visitation, are released on a timely basis.
We will understand the statistical impact macro has on gaming revenues as more quarters pass. However, our view is that the deteriorating macro environment, as evidenced by variables that we believe will prove to be significant, is negatively impacting casino play at the Singapore casinos.
For LVS, we are projecting Q2 Marina Bay Sands (MBS) EBITDA of $378 million, which assumes a normal hold percentage, versus the Street at $390 million. Given the macro weakness, we feel less certain in our Q2 and 2014 MBS EBITDA estimates.