VIP betting volumes have been going down but over the longer term the Asia Pacific gaming industry “will benefit from the under-penetrated and growing middle class, and improved infrastructure [across the region],” says Fitch Ratings Inc in its 2015 outlook for the sector.
The ratings agency retained the stable outlook on the Asia Pacific gaming sector, saying that the performance of gaming operators in the region will “remain resilient” to lower VIP volumes.
“Our stable outlook for Asia Pacific gaming hinges on our expectation that the Chinese VIP segment is near a trough and will start to recover by the second half of 2015,” Fitch said in Monday’s report.
“Continued sequential declines in Macau, and worsening of Chinese macroeconomic factors, may lead to a more negative view. Other factors would include the timing of new supply, including the potential legalisation in Japan and new casino openings in Vladivostok, [South] Korea, the Philippines and Australia,” it added.
Fitch, which expects growth in casino gross gaming revenue (GGR) in Macau to be flat this year, forecasts gaming revenue to decline by 4 percent year-on-year in 2015, driven by the weakness in VIP play.
There has been a contraction in VIP revenue in Macau since mid-2014 and growth is only expected to resume in the second half of 2015. Specific negative drivers include the anti-corruption crackdown and the tightening of credit in mainland China, the smoking ban imposed in October and tighter travel restrictions, said Fitch.
In November, casino GGR in Macau was off 19.6 percent from the same month last year. That was the sixth straight month of year-on-year declines. The accumulated total for the calendar year to November 30 rose only 0.3 percent from a year earlier.
“The weakness, which started in the second half of 2014, will persist through the first half of 2015 until the negative trends bottom out and new projects open by the second half of 2015,” said the ratings agency.
It added: “We suspect the China factors will affect most VIP-dependent markets in Asia-Pacific, particularly Singapore.”
In October, Fitch said potential changes to gaming policies in Singapore could “weigh on their [casino operators] medium-term growth and profitability outlook”.
In the latest report, it said the Singapore casinos would be able to withstand the revenue and margin compression “without impairing their underlying credit profiles”.
Resorts World Genting in Malaysia, operated by Genting Malaysia Bhd, “appears to be shielded from China, which is in contrast with Singapore and Macau,” Fitch pointed out.
Across the Asia Pacific region, the ratings agency expects the gaming industry to become more competitive following the opening in the Philippines of City of Dreams Manila – a property that had a soft opening on Sunday – and Resorts World Bayshore, scheduled for 2018. Other two properties in Manila – Resorts World Manila and Solaire Resort and Casino – are currently being expanded.
Competition is also expected to increase with the new projects in Australia and South Korea, said Fitch, citing the example of Genting Singapore Plc, which is investing in a US$2.2 billion project at South Korea’s Jeju Island, a scheme likely to open by 2017.
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”We expect Okada [Manila] to add US$1.2 billion of GGR by 2019 to the overall market, capturing 32 percent market share”
Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley