Expertise in running and marketing mass-segment gambling is “becoming more critical” to casino firms’ success in Macau, says a note from brokerage Sanford C. Bernstein Ltd.
“In our view, not all gaming operators are identical. As business migrates to Cotai with new properties continuing to open, casino operators with [Macau] peninsula-concentrated product portfolios (e.g. Wynn, MGM, and SJM) may continue to lose market share over the medium and long-term,” said Monday’s note from analysts Vitaly Umansky and Simon Zhang.
They were referring to the shift of the Macau market to mass gambling on Cotai and away from VIP play on the city’s peninsula, and to operators Wynn Macau Ltd, MGM China Holdings Ltd and SJM Holdings Ltd. All three firms are currently building Cotai properties but do not yet have a presence there.
Macau’s VIP baccarat gross gaming revenue (GGR) – as a percentage of all the city’s gaming revenue – has fallen from 66.1 percent in 2013, to 60.5 percent in 2014, to 55.4 percent in 2015, according to data from the local gaming regulator.
Tim Craighead, senior analyst on casinos and gaming for Bloomberg Intelligence, said in a recent report on Macau operator Sands China Ltd – which has most of its resort infrastructure on Cotai – that the firm’s location there “supports Sands’ mass-market lead, even with stiffer competition coming”.
“The lion’s share of Sands China’s profit comes from its mass-market casino tables and non-gaming businesses, and the mix continues to shift more in this direction,” noted Mr Craighead.
“These segments generated about 80 percent of last year’s operating profit [for Sands China]. In contrast, the low-margin VIP business accounted for a relatively miniscule 10 percent, even though it typically garners news headlines,” he added.
Bloomberg stated that based on its analysis, mass-market gambling contributed about 75 percent of the profit from table game operations for Macau casinos in the fourth quarter.
Morgan Stanley Asia Ltd said in a note on Wednesday that the structure of Sands China’s business – including the weighting of its non-gaming activities relative to market peers – was currently more capital-efficient than the investment made by firms relying more on VIP gambling business.
“In Cotai, Sands is more efficient with the help of higher ROIC [return on invested capital] mass business. It also has bigger retail business, which is less staff intensive and carries higher margin,” said Morgan Stanley analysts Praveen Choudhary and Alex Poon.
The Macau market got off to a “slow start” revenue-wise in the first six days of March, said a note on Friday from Cameron McKnight, Daniel Adam and Robert Shore of brokerage Wells Fargo Securities LLC.
“It’s possible revenues are trending below our -7 percent to -11 percent estimate for March,” said the trio, adding it was probably “too early to call stabilisation” in the Macau market, following 21 consecutive months of year-on-year decline in casino revenue.
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Macau market-wide year-on-year decline in casino gross gaming revenue for the first seven months of 2020