A disparity between Macau’s official casino gross gaming revenue (GGR) figures by product segment and the view of some sections of the investment community has been highlighted in the latest analyst commentary on the city’s industry.
On Monday the city’s regulator, the Gaming Inspection and Coordination Bureau – also known by its Portuguese acronym DICJ – issued the fourth-quarter data on the market split, indicating VIP casino gross gaming revenue (GGR) expanded by 12.6 percent year-on-year, while mass-market gambling, including play from slot machines, rose by 7.4 percent year-on-year.
“We note that the DICJ data is unadjusted for the smoking restrictions, which went in place in the fourth quarter 2014; though still create some mix volatility,” said a memo the same day from analysts Carlo Santarelli and Danny Valoy of Deutsche Bank Securities Inc.
In the Macau market, some higher-end mass-market gambling areas have been rebadged as ‘VIP’ by some casino managements, in order to allow tableside smoking. In Macau, smoking is currently allowed in VIP gambling areas, provided they are physically separate from the main gaming floor. The city’s gaming regulator categorises VIP play according to betting amounts, rather than the presence or absence of a rolling chip programme.
“The reality is going to be a lot closer to VIP +7 percent year-on-year and mass +13 percent year-on-year,” said a Monday note from brokerage Union Gaming Securities Asia Ltd, referring to the split between Macau market segments once so-called table reclassification has been factored to account for tableside smoking. The brokerage’s assumptions are based in the numbers to be reported by the city’s six casino operators.
“With respect to individual operators, the devil remains largely in the details regarding the breakdown between VIP and mass and overall market shares (which are not available) and as such the weight of the overall GGR number needs to be taken with a bit of scepticism,” said a Monday note from brokerage Sanford C. Bernstein Ltd, commenting specifically on current trends in January.
Sanford Bernstein said that based on its own channel checks, it expects January GGR in the range of MOP20.4 billion (US$2.5 billion) to MOP20.9 billion, up by between 10 percent to 12 percent year-on-year.
“Mass-market growth led by new openings should continue to drive industry EBITDA [earnings before interest, taxation, depreciation and amortisation] increases,” suggested a Monday note from Japanese brokerage Nomura, referring to a string of new casino venues in the Cotai district of Macau, opening on various dates between the spring of 2015 and the end of 2017.
The brokerage further stated with particular reference to high-stakes gambling: “Key risks to be mindful of are: China property market slowdown; measures curbing capital outflows; and tightened junket regulations affecting high-end gaming demand and hence investor sentiment towards the sector.”
Several brokerages also gave previews on the reporting season for fourth-quarter Macau operator earnings, which is due to begin in late January.
“We expect company EBITDA growth [market-wide] of 5 percent quarter-on-quarter in the fourth quarter (compared to 17 percent quarter-on-quarter in the third quarter), because of weaker luck than in the third quarter and weaker mass growth,” said analysts Praveen Choudhary, Alex Poon and Thomas Allen of banking group Morgan Stanley in a Monday note.
“Our recent corporate day [event] reveals that investors’ focus is currently on VIP performance in first quarter 2017, hence management comments on year-to-date-2017 performance should be closely watched,” said Nomura, referring to the upcoming fourth-quarter earnings conference calls involving the Macau operators. On such calls, analysts commonly ask managements to comment on business trends outside the reporting period.
In commentary regarding the general market outlook for Chinese New Year, which in 2017 falls on January 28, analysts DS Kim and Sean Zhuang of JP Morgan Securities (Asia Pacific) Ltd stated: “We continue to expect Chinese New Year demand to be very strong, possibly even stronger than recent [years’] October Golden Weeks, based on our checks on junket trip booking trends (for VIP) and hotel booking conditions (for mass) which appear very upbeat.”
The reference regarding “October Golden Weeks” was to an annually occurring mainland China festive season that includes China’s National Day holiday on October 1.
“Near term, tightening capital controls and a more bearish outlook could drive a better-than-expected Chinese New Year. Further out, we are cautious and don’t expect a v-shaped recovery as in 2010 and 2013,” said a Monday note from analysts Cameron McKnight and Robert Shore of brokerage Wells Fargo Securities LLC.
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