Macau mass growth in question say analysts

Macau mass growth in question say analysts

Monday, February 27, 2017
VIP segment driving first quarter improvements

After a field trip to Macau, analysts at Morgan Stanley are concerned that their estimates for the mix between VIP and mass-market gaming revenue growth for this year may be slightly out as signs emerge of a more robust high-roller segment than was predicted.

The M Stanley team made its trip late last week and noted the growth rate figures for January and February were in line with its forecasts for gross gaming revenue (GGR) for the year of 9 percent, mass gaming revenues at 11 percent and EBITDA for the market as a whole of 13 percent.

However, it noted after meetings that the bulk of the growth in the first two months of the year came from the VIP segment. Mass growth in January, adjusted, came in at minus 2 percent. The analysts noted, in particular, that two junket operations spoke of VIP growth of over 20 percent. They noted this will have an impact on EBITDA growth.

Operators also dismissed the theory that the rise in VIP was a direct substitution from the mass premium market. “We believe there could be two reasons for slower mass. First, spending per capita is not growing fast enough. We see day trippers/group travellers finally started to rise (in January) and many customers were spending more money on non-gaming amenities, as Cotai improved the offerings.

“Second, there are no incremental hotel rooms till MGM opens around the fourth quarter 2017 and no major infrastructure improvements in the near term.”

More VIP gaming could spell potential trouble in Macau. Much of the recent history of the gambling enclave has centred on the attempts by the Chinese authorities to stem the flow of VIP business into Macau as part of President Xi’s anti-corruption drive.

The M Stanley team suggest there will be winners and losers this year in terms of EBITDA expectations. Pointing to their above expectations estimates for Galaxy (11 percent higher) and their below consensus predictions for Sands China, the team say they believe cannibalisation of Venetian/ Cotai Central from other Cotai casinos, including Parisian, “could continue.”

“Galaxy has gained market share in both VIP and mass, and 2017 consensus estimates appear too conservative. We expect continued ramp at Wynn Palace as mass floor has not been not busier and minimum bets have gone up. We think Wynn/Galaxy could take more share from Sands China in the first-half 2017 than consensus expects.”

Totally Gaming says: The vexed issue of VIP play in Macau is one of the long-running storyline in the enclave. Should it be found that the majority of the growth is coming from that segment and not from the (as far as the Chinese government is concerned) mass segment, it might not play well with the authorities.

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