Play via credit represents between 50 percent and 60 percent of VIP gambling business in the Macau market for several of the major junket brands, versus “more than 80 percent” in the previous peak cycle, according to a new report from brokerage Sanford C. Bernstein and Co LLC.
The institution nonetheless added that “the junket system” had become a “source of liquidity for some premium-mass players”. That was a reference to players that gamble in cash, rather than on credit.
The brokerage report implied that the “cash” such premium-mass customers are using to play is in fact a form of credit, but not a form of credit that relates to the rolling chip system. The latter is the traditional way for junkets to manage VIP play in the Macau market, and to make a margin on the money they lend.
A Sanford Bernstein research team stated in a Friday report on the link between consumer credit in China and Macau casino gambling: “Today, the junkets remain very well capitalised with limited bad debt increase. Junkets like Suncity [Group] and Tak Chun [Group] have been cautious on overall credit extension to agents and players, with overall credit play representing only 50 percent to 60 percent of VIP play today (versus over 80 percent in the past-peak VIP cycle of 2013 to early 2014).”
The authors added: “The junket system is the primary provider of credit to VIP players and a source of liquidity for some premium mass players.”
Sanford Bernstein noted that the outlook for Macau gross gaming revenue (GGR) into the second quarter and beyond could be brightening, despite a slight aggregate year-on-year contraction in that indicator in the first two months of 2019. One harbinger of strengthening Macau GGR performance could be better numbers out of the China car sales market, and the financing of such consumer purchases.
“We now use the change in China’s credit impulse as a key driver of our auto sales forecasts,” stated the researchers.
“The former also leads Macau GGR growth by two to three quarters, and VIP GGR growth in particular,” they added.
The institution said its research indicated that a total of CNY19.5 billion (US$2.9 billion) in car loans via so-called asset-backed securities was issued in the first 20 days of March, “making it already the second-highest month on record”.
Although the brokerage added “one area where we don’t expect a meaningful rebound is in peer-to-peer auto loans” in China, where loan volumes had dipped “sharply” in summer 2018, “in response to increased regulatory scrutiny”.
The institution said many Chinese VIP gamblers in Macau were “asset rich” but “cash flow tight”, and relied on credit backed up by assets – such as real estate – to fund their casino play.
“When such credit is more constrained, as we had seen in 2018, personal liquidity becomes constrained weighing on the customers’ ability to spend. With potential credit loosening in 2019, Macau higher end play could be more supported in second-half 2019,” wrote the Sanford Bernstein team.
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"The protests in Hong Kong may have caused some transport disruption and created a headwind to China visitation into Hong Kong (and onward visitation into Macau), but we believe the impact on GGR from the Hong Kong protests has been more minor"
Vitaly Umansky, Eunice Lee and Kelsey Zhu
Analysts at brokerage Sanford Bernstein