GGRAsia – Macau 1Q VIP GGR down 10pct: Morgan Stanley

Macau 1Q VIP GGR down 10pct: Morgan Stanley

Apr 11, 2019 Newsdesk Latest News, Macau, Top of the deck

First-quarter VIP gambling revenue in Macau was down by 10 percent year-on-year, while that for the mass-market segment grew by 8 percent. That was the estimation of banking group Morgan Stanley in a Wednesday lookahead on the coming earnings season for Macau’s six operators.

The official data on the first-quarter split between mass-market and high-roller play has not yet been issued by the Macau government. The proportional contribution of credit-fuelled VIP play versus the mass-market sort has been declining for several years in the Macau market according to Macau government data. At least one brokerage has said however that some “premium-mass” play might also be generated by credit issuance.

“VIP rolling remained weak but we did not hear any good explanation except that agents are still cautious in extending credit,” said Morgan Stanley in the firm’s latest commentary on the Macau market, referring to information the bank said it had gathered from a recent trip to the city.

“The impact of recent rulings on foreign exchange transactions appears minimal,” added the report from analysts Praveen Choudhary, Jeremy An and Thomas Allen. That was a reference to the regulatory environment regarding channels used by some players – predominantly consumers from mainland China – to acquire Hong Kong dollars needed in order to place bets in the Macau casino market.

“Minimum bets have come down a bit, in our view,” added Morgan Stanley.

The lookahead gave some further commentary on the earnings performance and outlook for the individual casino firms in the market, including MGM China Holdings Ltd.

“We expect MGM China to report property EBITDA of US$199 million (+9 percent quarter-on-quarter), highest [growth rate] among peers,” wrote the bank’s analysts, referring to group earnings before interest, taxation, depreciation and amortisation. Judged year-on-year, that would be a 21-percent improvement, indicated the institution.

“More upside should come from the opening of the Mansions in late March and continued improvement at Cotai facilities,” added Mr Choudhary and his colleagues, referring to large-scale villa accommodation at MGM Cotai, aimed at high-value customers.

New junket rooms at City of Dreams, a Cotai property run by Melco Resorts and Entertainment Ltd; at MGM Cotai; and at Galaxy Macau, a Cotai venue operated by Galaxy Entertainment Group Ltd, “should help these companies gain VIP market share in 2019,” suggested Morgan Stanley.

“We expect Melco Resorts to report flattish to slightly-down EBITDA in the first quarter; but it has the highest potential for positive earnings estimate revision,” indicated the bank. It estimated the firm’s first-quarter EBITDA would be US$375 million, a decline of 1 percent year-on-year, and down 6 percent quarter-on-quarter.

Macau market-wide, Morgan Stanley anticipated “weak” first-quarter, hold-adjusted EBITDA, in likelihood down 2 percent year-on-year.

Referring first to a local market practice of incentive payments to casino firm staff, and second to player reinvestment by the city’s six casino operators, Morgan Stanley said: “This is driven by higher staff costs from 14th-month bonus, higher reinvestment rates, and lower revenue growth versus cost.”