Macau’s mass-market casino play, which accounted for half of the city’s first-quarter gross gaming revenue (GGR) – a record high since records have been kept – is likely to continue to do well; less so GGR from VIP play. That could have a further impact on what proportion of Macau’s gaming revenue comes from the mass segment versus the high roller one.
Those are views expressed respectively in a brokerage’s report on the Macau market, and via comments to GGRAsia from a representative of a Macau junket investor brand.
“As mass [GGR] continues to pace well… we see a low bar that VIP needs to exceed in order to drive 2019 GGR above 1-percent to 2-percent growth expectations,” investment bank Macquarie Capital Ltd wrote in a Thursday report. The paper was issued after the first-quarter GGR figures as broken down by segment were issued by Macau casino regulator, the Gaming Inspection and Coordination Bureau, a body also known by its Portuguese acronym, DICJ.
The premium-mass segment – a reference to players that bet in high multiples but in cash rather than the credit issued to traditional VIP players – accounted for approximately “50 percent” of Macau’s mass GGR in the first quarter, suggested a Macquarie research team led by Hong Kong-based analyst Edward Engel.
Softness in China’s economy had proven “not enough to meaningfully derail” either so-called “base” mass, or premium-mass performance during the quarter, the Macquarie team indicated.
A March report from brokerage Sanford C. Bernstein and Co LLC suggested that “the junket system” in Macau had become a “source of liquidity for some premium-mass players”.
Andrew Lo Kai Bong, chief investment officer of privately-held Macau junket firm Suncity Group, expressed caution regarding Macau’s VIP gaming GGR performance in the upcoming quarters. His firm was “hopeful” of a rebound in Macau’s VIP gaming volume – another measure of performance – but only from the fourth quarter this year, Mr Lo remarked to GGRAsia.
China macro, smoking
“It will take quite some time for the benefits from China’s monetary easing measures to be inflected in the VIP play here,” Mr Lo said. He was referring to recent reductions by the People’s Bank of China regarding the proportion of capital that China’s banks must hold in reserve relative to their lending; a formula known as the reserve requirement ratio.
Macau’s mass-market revenue including slots in the first quarter was MOP38.94 billion (US$4.8 billion), up by 16 percent when compared to MOP33.55 billion a year earlier. The mass-market revenue during the period has also taken the lead in the Macau market for the first time, accounting for 51.14 percent of the city’s overall GGR.
Meanwhile VIP baccarat was a drag on the city’s casino GGR performance in the first quarter. Such high-roller GGR fell by 13.4 percent from the prior-year perio, to MOP37.21 billion.
Commenting on the breakdown of Macau’s GGR in the first quarter, the Macquarie analysts said the ending of tableside smoking in VIP areas from January 1 - the function of a grace period for the industry and a move that meant catching up with what was already happening in the mass segment - could be “driving a mix shift” in the casino regulator’s reported GGR data.
Since October 2014, when a ban on any smoking – including tableside smoking – in the mass-market areas of casinos had come into effect save for in enclosed smoking lounges, “VIP GGR outpaced operator-reported VIP each year; where the delta between DICJ/operator VIP reached US$3.3 billion in 2018 versus less than US$500 million in 2013,” stated Macquarie.
“With the [tableside] smoking ban now universal, we see less incentive for non-rolling chip play in VIP rooms. Post-ban, operators that had mass-gaming areas that were ‘grandfathered’ into VIP standards have noted more dispersed cash play across casino, and we believe this may be the case for the rest of non-rolling chip play as well,” the note said.
While this had an impact on “DICJ segmentation” of Macau GGR, there was “no impact to operator segmentation”, the brokerage added.
The Macquarie team suggested Macau’s VIP business, especially its junket volumes, had been somewhat adversely affected by regional competition. The institution mentioned as sources of such competition the NagaWorld casino resort complex in Phnom Penh, Cambodia, run by Hong Kong-listed NagaCorp Ltd, and Okada Manila in Philippines, promoted by Tiger Resort, Leisure and Entertainment Ltd, a unit of Japan’s Universal Entertainment Corp.
“Of the two major regional competitors ramping (Naga[World] in Cambodia and Okada [Manila] in the Philippines), the combined year-on-year dollar increase in volumes was just US$4 billion, or less than 3 percent of first-quarter 2018 Macau volumes. Assuming industry-wide Macau volumes fell 15 percent to 20 percent in first-quarter 2019, Naga and Okada represent just approximately 15 percent of that decline,” the Macquarie analysts wrote.
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Andrew Lee and David Katz
Analysts at brokerage Jefferies LLC