Banking group Morgan Stanley anticipates a recovery in Macau VIP betting revenue in the third quarter of this year.
Morgan Stanley Asia Ltd added in its recent note on the VIP topic that a market consensus – suggesting the high-roller business slowdown in the city might be linked to cannibalisation of the market due to improved casino product in other regional destinations – might be wide of the mark.
“Cambodia and the Philippines VIP business have grown significantly in the last two years and might give an impression that they are taking share from Macau. However, if we add Singapore, Australia and Saipan, we realise that the percentage of VIP revenue from regions (other than Macau) has remained fairly stable at around 30 percent of the total VIP revenue in Macau,” the note, written by analyst Praveen Choudhary, argued. “Thus, one cannot blame overseas leakage for recent Macau VIP revenue growth slowdown.”
The memo further stated, referring to a form of betting where a person acting as a “proxy” for a player not physically present in the casino makes a bet on their behalf – typically after taking instructions via telephone: “The majority of VIP gaming revenue in the Philippines is proxy betting, which is not allowed in Macau and thus it is not a result of cannibalisation. We conclude that Macau VIP revenue could remain resilient despite leakage to ASEAN [Association of Southeast Asian Nations] countries and should recover in second half 2019.”
The bank noted, referring to an economist measurement of money supply in mainland China, the main feeder market for Macau casino business: “There are two main reasons for VIP slowdown in Macau. The first one is the liquidity crunch in the second half of 2018 as M1 growth decelerated from 11.9 percent in the first quarter of 2018 and 1.7 percent in the first quarter of 2019.”
The note says there are positive signs emerging that may tend to indicate a return to growth.
“Some of the liquidity indicators have started turning around recently, with China M1 reading for March being 4.6 percent, better than the reading in January of 0.4 percent. Based on our analysis, China liquidity indicators lead Macau VIP revenue growth by around six months, and thus we expect VIP recovery to be visible by the third quarter of 2019.”
This month Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac said the city’s government was not unduly concerned about a slight decline in casino gross gaming revenue (GGR) in the first four months of this year.
Mr Leong said the Macau gaming industry was resilient and welcomed a shift in the casino gaming market, which has seen the development of the city’s mass market grow in importance.
Official figures indicate that casino GGR in Macau was MOP23.59 billion (US$2.92 billion) in April, 8.3 percent less than a year earlier, meaning GGR in the first four months of this year was nearly MOP99.74 billion, 2.4 percent less than in the corresponding period of 2018.
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Analyst at Roth Capital Partners