Macau mass gaming slip risks margin pressure: analysts
Macau gross gaming revenue (GGR) for November could be heading for a year-on-year decline of between 14 percent and 20 percent, spurred by continuing softness in the VIP segment and lacklustre performance in the mass market table games segment say three research houses, based on returns covering the first 10 days.
Any weakness in the mass segment could also be harmful to overall margins in the Macau gambling market, say notes from Credit Suisse AG in Hong Kong and Wells Fargo Securities LLC in New York.
Possible risks to margins mentioned by the industry include increased player reinvestment rates particularly in the so-called premium mass segment – in simple terms the enticements that the casino companies must offer players to get and retain their business.
The mass market is considered a much higher margin area than VIP, albeit that mass in turn is also segmented between premium mass and ‘mass mass’ or ‘base mass’ that offer different margins. Typically premium mass players get more in the form of complimentary goods and services than base mass, because their play volumes are higher than in the grind trade.
Credit Suisse analysts Kenneth Fong and Isis Wong said in a note on Tuesday: “…as the [Macau] mass revenue starts dipping into the negative growth territory, even though we have seen the worst year-on-year growth trend in overall GGR for October, we may see more [Wall] Street earnings downgrades. A slower mass revenue would also hurt margin for fourth quarter which is yet to be factored in by the Street, in our view.”
Wells Fargo’s Cameron McKnight, in commentary based on unofficial industry returns for the first 10 days, stated on Tuesday: “Our checks suggest that hold is normal but mass revenues remain weak (negative).”
He added: “…the mass segment will see margin pressure as the business becomes more competitive due to slower growth,” noting the November GGR decline could be 16 percent to 18 percent year-on-year.
Sam Levenson, senior vice president of investor relations for Las Vegas Sands Corp, parent of Macau casino operator Sands China Ltd, mentioned “45-plus percent margin” in the “base mass” segment when he spoke on a quarterly earnings conference call on October 15.
But the executive added: “I think we’re all aware that there’s competitive pressures in the premium mass segment. I think you’ll hear that from anybody that’s been in Macau recently.”
Elsewhere on the call, Las Vegas Sands mentioned margin on premium mass was “in the 30s” of percent.
And Daniel J. Briggs, vice president of investor relations, said during the same call that “margins in VIP in Macau are healthy…commission rates are not going up.”
The Credit Suisse research team on Tuesday said that assuming average daily revenue (ADR) of MOP820 million [US$102.7 million] to MOP880 million for the rest of November – based on unofficial returns for November 1 to 9 inclusive – November GGR might drop by 14 percent to 18 percent.
A note on Tuesday from Japanese investment bank Daiwa Securities Group Inc’s Hong Kong office suggested Macau’s November GGR could decline by as much as 20 percent.
Analysts Jamie Soo and Adrian Chan wrote: “Macau’s table-only GGR for 1-9 November was HKD7 billion with an ADR of HKD782 million, up 17 percent week-on-week but down 16 percent year-on-year. Based on the current run rates, we estimate November’s total GGR to see negative growth of 15 percent to 20 percent year-on-year.”
Mr McKnight of Wells Fargo said: “We remain on the sidelines regarding the Macau market, as we believe China policy settings are negatively affecting growth. In particular, we see (1) visa restrictions, (2) the anti-corruption drive, (3) a pull back in credit, and (4) a softening housing market all contributing to a slowdown in Macau.”
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