Fitch Ratings Ltd has revised downward its 2014 Macau gross gaming revenue (GGR) growth estimate to 10 percent from 12 percent. The rating agency said the decision was due to “weakness in the more volatile VIP segment”.
Macau’s GGR for full-2013 stood at MOP360.7 billion (US$45.2 billion).
Fitch noted that VIP weakness caused Macau GGR to post its first year-on-year drop in five years in June – a decline of 3.7 percent.
“While some weakness can be attributed to the [FIFA] World Cup and low hold during June, VIP softness has continued into July,” Fitch wrote in a note issued on Monday. “We also believe VIP is being affected by the reallocation of tables toward the low-yield, high-margin mass market table games.”
The ratings agency said its 10-percent growth forecast was based in “low single-digit declines in VIP and 25 percent to 30 percent mass growth” for the remainder of the year. Macau GGR for the first half of 2014 stood at MOP193.1 billion, up by 12.6 percent from the same period a year earlier.
Fitch forecast mass-market growth would continue to be supported by “longer-term drivers such as improved transportation infrastructure and growing middle-class” in mainland China. It added that “VIP is more sensitive to macroeconomic factors”.
The note highlighted that prior concerns regarding China UnionPay card swipe terminals “will not be a major issue”. Existing machines in jewellery and pawnshops located near or in casinos will continue to process UnionPay transactions but will face a temporary moratorium on adding new machines, the government announced last month.
Mainland visitors are only allowed to take a daily limit of RMB20,000 (US$3,211) out of mainland China in cash. Gamblers however routinely get around this by purchasing items from one of Macau’s pawnshops or jewellery stores using their UnionPay cards, immediately returning it in exchange for cash. The seller gets a commission over the first transaction.
“Access to UnionPay machines is important for the mass market as they help to distribute the maximum cash [mainlanders] are allowed to bring to Macau,” Fitch said.
The rating agency added that the full prohibition on smoking inside mass casino floors would at most have “some marginal impact” on the mass side. The rule will come into effect this October. Smoking will still be allowed in VIP rooms and some premium mass areas.
“We do not expect a significant change in visitation [due to the full smoking ban] and think comparisons to markets such as Illinois are inappropriate given the lack of other convenient options for Chinese and Hong Kong nationals,” Fitch said.
