One year on: elevated to a higher playing field S$7.9bn in 2011E

Our confidence in a sustainable run rate for Singapore’s gaming market

(GGR) is on the rise we estimate the market size at an annualized S$6.9bn

(US$5.3bn) based on 4Q10, expanding 15% to S$7.9bn (US$6.1bn) by end-

2011E, 7% ahead of previous forecast and 22% of Macau’s US$28.2bn

market. Incremental demand is VIP driven +18% in 2011E over 4Q10’s run

rate. By market share, the VIP segment should rise to 55% in 2011E from

53% in 2010, with Chinese VIPs the delta, previously thought more captive

to Macau, now accounting for 40% of the premium market, we estimate. We

expect the mass segment to grow 12% in 2011 vs. 4Q10 run rate. With this

report, we transfer coverage of the ASEAN gaming companies to Paul Lian.

Bigger picture of profitability and returns for Singapore casinos

We estimate Resorts World Sentosa (RWS) VIP volumes are at the high end

of Macau, underpinning the potential of the market. We forecast RWS roll

of US$6.1bn/mth in 2011, above select Macau peers of US$4.8bn (market

leader Wynn Macau at US$8.5bn). Daily gross revenues are amongst the

highest in the industry, at S$12.1mn in 2011, driven by VIP wins set to rise

from S$6.6mn in 4Q10 to S$7.4mn (US$5.7mn) in 2011E, above select

Macau peers of US$4.5mn (Wynn Macau US$8.1mn), while still in an early

ramp-up phase. With the market rebased, RWS should achieve ROIC of

32% in 2011E, more attractive than new Macau venue City of Dreams’ 13%.

GENS arguably the more dominant operator 56% of market share

GENS enjoyed 58% GGR market share in 4Q10 and should maintain a

56%/55% share for 2011/12, ahead of earlier expectations of an even split.

GENS achieved 65%/50% of VIP/mass segment 4Q10 market share, edging

MBS. Our more constructive view is not without caveats, acknowledging

concerns over the build-out of receivables to drive direct VIP volumes, but

find comfort in our view that bad-debt risk remains well-anchored.

Upgrade GENT to Buy GENS to Neutral from Sell, off CL

We view Asean casino valuations as reasonable amidst higher profitability

and positive spillover demand from Macau, GGR +43% YTD to US$7.2bn in

1Q2011 Macau gaming stocks have outperformed Asean ones by 38% YTD

and 52% over 6M and now trade at 15.4X (14X w/o new projects) FY11E

EV/EBITDA vs. Asean at 8.8X. We favor GENT at 5.9X EV/EBITDA and think

it is worth its weight on GENS and GENM prospects alone, 79% of SOTP.