Revenue expansion in the Macau VIP gambling sector is probably “unsustainable” and in likelihood “too high for the government’s taste,” says a Monday note from Japanese brokerage Nomura.
The institution suggested this was the case even when factoring in so-called “table reclassification”, which some investment analysts say tends to overstate Macau VIP growth and understate that for the mass segment.
Casino gross gaming revenue (GGR) in Macau’s VIP baccarat segment rose 34.8 percent year-on-year in the second quarter, according to data released on Monday by the local regulator, the Gaming Inspection and Coordination Bureau, also known by its Portuguese-language acronym DICJ.
VIP GGR expanded by 16.8 percent year-on-year in the first quarter of 2017, according to gaming bureau data released in mid-April.
Nomura said in its Monday note: “We believe the year-on-year comparisons for VIP and mass were probably affected by table reclassifications, which in the first quarter resulted in DICJ-reported VIP revenue growth that was 800 basis points higher than what the operators reported (DICJ-reported mass revenues were 500 basis points lower than reported).”
Notwithstanding a revised bill on smoking rules passed on Friday by Macau’s Legislative Assembly, tableside smoking in “VIP” areas of casinos is currently still allowed, although smoking at mass-market tables and slots was banned some years ago.
The gaming bureau defines a Macau VIP room not by the presence of a rolling chip programme but by table minimums and maximums and whether it is physically separate from the main gaming floor. As a result, some operators have designated – or “reclassified” – cash play premium mass areas as “VIP” in order to enable tableside smoking to continue.
Nomura noted on Monday: “If the first quarter’s [reporting] differential [is] repeated [extrapolated], then the mix reported by companies in the second quarter will be 12 percent mass and 27 percent VIP [year-on-year growth], which is still likely skewed too high for the government’s taste.”
The brokerage added that it continued to “caution investors that a significantly higher mix of VIP versus mass revenues is an unwelcome combination… we do not believe Beijing has changed its view on either corruption or the illicit movement of renminbi [Chinese currency] from the mainland.”
Several brokerages had mentioned in notes – prior to Monday’s release of data on the second-quarter structure of the Macau gaming market – that Macau junket investor Suncity Group had on Friday issued a warning to agents and customers from mainland China about the risks of moving money cross-border.
“The government could use policy to return the desired mix more to the mass segment,” stated Nomura in its commentary on the second-quarter market split.
Deutsche Bank Securities Inc said in a Friday note that the impact of table reclassification skewing the respective contributions to total GGR by VIP and mass should be removed from the picture, once tableside smoking in VIP areas is completely phased out by January 1, 2019.
The Macau government confirmed on Monday that soon people entering or leaving the city with cash or other “negotiable monetary instruments” valued at MOP120,000 (US$15,000) or more, will have to sign a declaration form to that effect and submit it to the Macau Customs Service.
Macau’s Legislative Assembly approved in late May a government-proposed bill introducing a currency declaration requirement for all travellers to and from the jurisdiction. The new law will become effective on November 1, 2017.
The move, the government said at the time, would help fight the risk of money laundering via Macau. The city has also introduced facial recognition technology to automated teller machines in order to monitor the use of mainland China-issued China UnionPay Co bank cards for cash withdrawals.
Residents of mainland China are only allowed to carry a daily limit of RMB20,000 (US$2,953) across the jurisdiction’s borders.
In other developments, Telsey Advisory Group LLC said in a Monday note – giving commentary on July market performance – there had been some hold rates above theoretical average so far to date.
“Although hold percentage has been indicated to be elevated in both Cotai and the [Macau] peninsula, an assumed more normal hold for the remainder of the month results in an estimated [year-on-year] increase of 25 percent to 28 percent in GGR,” wrote analyst David Katz.
He added: “We believe it is fair to assume a more vigilant stance on the group [of Macau-related gaming stocks] due to the increasingly challenging comparisons through the remainder of the year coupled with new supply entering the market for fourth quarter 2017”.
MGM Resorts International, parent of MGM China Holdings Ltd, said in April it was targeting the fourth quarter of 2017 for the opening of the latter’s HKD26-billion (US$3.34-billion) MGM Cotai casino resort.
Brokerage Sanford C. Bernstein Ltd said in a Monday note that – based on unofficial industry returns for the first 16 days of July inclusive – this month’s total casino GGR was likely to expand by 22 percent to 24 percent judged year-on-year.
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Nov 19, 2018
"Most investors believe that Macau is ‘uninvestable’. Our experience has been that when opinions are so unanimously negative, then the risk/reward is skewed to the upside"
Japanese brokerage Nomura