Macau’s casino gambling sector is far from having a mass market in the Las Vegas sense, which might account for why the absence of key players in Macau is having such a big negative effect both in the VIP and mass-market segments, says a note from Morgan Stanley Research Asia Ltd.
First quarter mass-market gross gaming revenue (GGR) in Macau fell by 27.0 percent year-on-year. VIP baccarat GGR fell 42.1 percent, according to official data.
The Morgan Stanley report on the Macau market, by Praveen Choudhary, Alex Poon and Thomas Allen, suggested that 70 percent and possibly as much as 80 percent of the gambling defined by Macau’s regulator as mass market is actually done by ‘premium mass’ customers – those playing high stakes games but at mass market tables rather than VIP tables.
“The conventional segmentation of mass revenues into premium and grind is based on where the customer plays in the casino (high limit area, etc) or membership scheme but not on the amount they gamble. Many high rollers actually played on grind mass tables; hence, we saw Sands China’s grind mass revenue decline similarly in 1Q15 (-21 percent year-on-year) to premium mass (-29 percent year-on-year),” wrote Morgan Stanley in its report published this week.
While premium mass revenue is believed by some investment analysts to represent up to 50 percent of the mass market, the actual mix “could be as much as 70 to 80 percent,” the institution added.
When the VIPs either stop coming or visit with lighter frequency, and the same thing happens with the high end “mass market” players, it has an impact on GGR numbers that is disproportionate to the numbers of people involved, suggested Morgan Stanley.
“The ratio of table minimum bet to disposable income in Macau/China is still much higher than that in Las Vegas/U.S.,” its team wrote.
“The ratio in Macau/China is 0.10x, based on table minimum bet of HKD300 [US$39] and urban household average disposable income per capita of RMB2,400 [US$386] per month,” for 2014, said Morgan Stanley.
Its analysts added that in the Las Vegas and wider U.S. casino market, table gambling was simply far more affordable for the average local citizen. There, minimum bets were US$30 and U.S. per capita disposable personal income judged on a monthly basis was US$3,467 as of April 2015, giving a ratio of only 0.01x.
“Chinese visitors [to Macau] dropped by 4 percent year-to-date to April, as high rollers are visiting Macau less. This also implies that [Macau] boosting penetration [of the mainland market] has to come at the expense of lower pricing and margin in future, and that every incremental customer would have lower spending power,” wrote Morgan Stanley.
Current barriers on entry to Macau for VIP and premium mass customers are said by analysts to be both personal – avoidance of getting a name as a big spender during China’s anti-corruption campaign; and practical – because it is getting more troublesome to organise.
Brokerage Sanford C. Bernstein Ltd said in a note on Tuesday it estimated that the average VIP player in Macau has been accustomed to coming approximately four times per year, staying an average of one night per visit.
Analysts Vitaly Umansky, Simon Zhang and Bo Wen, said that in 2013, 2.6 million visits by mainland Chinese to Macau – 14 percent of all arrivals from the mainland – involved use of a transit visa. “However, 79 percent of them (approximately 2.1 million visitors) did not travel to a third destination and returned to China,” the analysts added.
In June 2014, Macau’s Public Security Police tightened the enforcement of the transit visa rules. That leaves the other main options as China’s Individual Visit scheme (IVS) visa system designed for independent travellers, or entry as part of a group tour.
“As IVS and group visas require more planning, transit visas were often being utilised for spur of the moment trips. Such last minute trips are now more difficult to implement,” said Sanford Bernstein.
There is a suggestion that the IVS route to Macau is also being tightened.
Analysts Jamie Soo and Adrian Chan from Daiwa Securities Group Inc said in a note on June 8 that, with effect from July 1, “visa holders will be prohibited from entering Macau more than three times within a 60-day period, regardless of travel to a third destination.”
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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