Citigroup is bullish on the Philippine gaming industry, which is seen to triple to $3 billion in terms of gross gaming revenues by 2015 once the Entertainment City along Manila Bay is completed to create a cluster effect similar to that in Macau.
“With significant barriers to entry in the gaming space, we believe new markets such as the Philippines represent a unique way to play the burgeoning and under-penetrated regional consumer story,” said a Citi report on Philippine gaming dated August 16.
While Citi continues to favor the Macau gaming market to the Philippines, Singapore and Malaysia, the report said the new developments in Manila were under-covered and “under-appreciated” and likely to outpace the growth in Macau. The report thus offered a favorable view on Bloomberry Resorts, Belle Corp. and Alliance Global Group Inc.
Gross revenues in the Philippines were estimated to have expanded by 40 percent year on year to $1.3 billion in 2011, which Citi said had firmly established the market within the regional gaming arena.
The Citi report also noted that as a result of the lower tax structure and mass-oriented mix of business in the Philippines (equal to an estimated 65 percent of gross gaming revenues in 2011 against 27 percent in Macau), earnings before interest, taxes, depreciation and amortization (Ebitda) margins at Resorts World Manila (RWM) were relatively better than Macau on average.
Citi is forecasting a 30-percent Ebitda margin at Resorts World Manila for the full year 2012 (against 31 percent in 2011, due to a weaker hold in the first quarter), which the report said was just above the 29-percent estimated Ebitda margin at Sands China, Macau’s highest-margin operator whose revenue base was roughly 10 times the size of RWM.
“Following the success at RWM, which opened in late 2009, we believe each of the new projects under development in Manila Bay will continue to grow the market on the back of increased visitation, growth in domestic consumer spending and an improved economic climate,” Citi said.
In addition to the development of the domestic Philippine market, Citi said the country’s proximity to a substantial portion of the world’s population—including China/Hong Kong, Korea, Japan and Southeast Asia—was providing significant long-term growth potential.
Citi initiated coverage on Bloomberry Resorts with a “buy” recommendation and a target price of P12.75 a share (it last closed at P10.06), saying this was the only “pure play” in the local gaming space. “As the next new property and the first in Manila Bay, we expect Solaire will showcase the VIP market potential,” the report said.
Citi also gave Belle Corp. (it last closed at P4.86) a “buy” recommendation and a target price of P5.65 a share, noting that the proposed gaming alliance with a world-class operator like Macau’s Melco Crown group would be “transformative for Belle Grande and remove risk to Belle shareholders.”
The report said Alliance Global Group had the least direct exposure to the gaming theme in the Philippines—through its 50-percent interest in Travellers International along with Genting of Malaysia—but also noted that this had a “far more balanced portfolio of consumer-oriented businesses.” Citi has a “buy” recommendation on AGI (it last closed at P11.18) with a target price of P13.60 a share.