Several investment analysts say they expect Macau casino operator first-quarter earnings to show a much more balanced growth rate between VIP revenue and the mass segment than had been indicated by Macau government first-quarter data.
The first-quarter numbers from the Gaming Inspection and Coordination Bureau – a body also known as DICJ – issued on Tuesday, indicated Macau VIP casino gross gaming revenue (GGR) expanded by 16.8 percent year-on-year, while mass-market casino GGR rose by 8.5 percent from the prior-year period. Excluding slots, the mass segment expanded by 7.9 percent year-on-year, according to Macau government data.
“We expect company-reported mass GGR to be up approximately 11 percent to 12 percent year-on-year, with VIP GGR up in the 14-percent to 15-percent year-on-year range,” said a Tuesday note from analysts Carlo Santarelli and Danny Valoy of brokerage Deutsche Bank Securities Inc. It was issued after the Macau data were published, and referred to the upcoming first-quarter earnings season for Macau’s six casino operators.
Grant Govertsen of brokerage Union Gaming Securities Asia Ltd said in a memo the same day: “Although the official data says VIP grew 16.8 percent year-on-year and mass grew 7.9 percent this is unadjusted for table reclassifications.”
He added: “Given that the DICJ VIP data is overstated and mass is understated (each by 300 to 400 basis points in fourth quarter 2016) we therefore estimate the real growth rates in first quarter 2017 were closer to VIP +14 percent and mass +11 percent.”
Japanese brokerage Nomura had an alternative view.
Its gaming team said in a Tuesday note: “While many analysts have been emphasising the importance of mass growth with little regard for accelerating VIP revenues, we have disagreed with this perspective and continue to caution investors that a higher mix of VIP versus mass revenue is an unwelcome combination.”
Nomura added: “In the first quarter, Macau GGR was up 13 percent, which was led by lower-margin VIP (+17 percent), not mass (+8 percent). We don’t believe the year-on-year comparison was affected by the table reclassification, which happened over a year ago.”
The institution added: “In our view, long- and medium-term investors should be troubled by the second consecutive quarter of double-digit VIP growth versus single-digit growth in mass revenues. Beijing has made it clear that strong mass growth is acceptable while junket-driven VIP is not.”
Nomura said in a separate note carrying Tuesday’s date: “China’s recent ban on visitation to [South] Korea and Taiwan could also imply upside surprise to our [Macau] mass gaming forecasts.”
That was understood to be a reference to control of Chinese outbound tourism potentially being a factor following recent cooling in the political ties between China and Taiwan’s pro-independence government; and between China and South Korea. In the latter case, some investment analysts have suggested the Chinese authorities have effectively banned Chinese citizens from visiting that country, although no formal statement to that effect has been issued by the China National Tourism Administration.
Referring to the 13 percent year-on-year uptick in Macau first-quarter slot revenue – a segment that in many casino jurisdictions is solidly mass market – Union Gaming’s Mr Govertsen noted on Tuesday: “[This] was its highest level of growth in nearly four years (since third quarter 2013).”
He added: “While the gut reaction would attribute most of the strength in slots to the fact that Macau is ‘on sale’ and budget-conscious gamblers can get a cheap room, we also believe that high-end/ VIP slots are also outperforming.”
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Analysts at brokerage Jefferies LLC