Casino VIP gross gaming revenue (GGR) growth in Macau in the first quarter was likely two percentage points higher than the official data suggested, due to so-called “table reclassification”, said a Tuesday note from brokerage Morgan Stanley Asia Ltd.
“After adjusting for mass revenue classified as VIP (owing to smoking restriction), we estimate that VIP revenue grew 23 percent year-on-year, while mass grew 19 percent. Mass revenue was 52 percent of total GGR (compared to the DICJ’s estimate of 44 percent),” wrote analysts Praveen Choudhary and Jeremy An.
They were referring first to the phenomenon whereby currently in certain Macau casinos some enclosed areas of high-limit mass-market tables – i.e. tables without a rolling chip programme – are classified as “VIP”. This is on the basis that smoking is currently permitted at tableside in VIP areas in some Macau casinos. VIP play is defined by the local regulator as relating to table minimum and maximum bets.
On Monday, the Macau casino regulator, the Gaming Inspection and Coordination Bureau, also known by its Portuguese acronym DICJ, announced first-quarter Macau casino GGR from VIP rose 21.0 percent year-on-year. The growth rate was slightly faster than the 19.9 percent recorded for GGR in the mass segment – inclusive of slot machine revenue. The regulator said mass-market baccarat GGR went up by 23.5 percent year-on-year.
“Mass is roughly four times more profitable” than VIP play, noted Morgan Stanley. Margins on high roller play are reduced by factors such as either commission or revenue share for the junket middlemen that bring in many of the VIP players seen in the Macau market, and also sometimes rebates or other incentives given directly by the house to high-value players.
Morgan Stanley said in a second note on Tuesday: “From here on, the [Macau gaming] stocks could react to second-quarter fundamentals (strong mass and VIP growth for the first 15 days), but negative seasonality and historical underperformance in the second quarter, increased junket scrutiny, and upcoming soccer games are some of the risks.”
The latter comment referred to the FIFA World Cup soccer tournament, which is due to begin in Russia on June 14. Major international soccer tournaments are said by some investment analysts to depress Macau casino GGR during the course of the event.
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"The stronger mass growth [in Macau in the second quarter] should be viewed positively vis- à-vis [the] government’s stated priority”
Japanese brokerage Nomura