Among Asia-Pacific casino operators, NagaCorp Ltd, via its Phnom Penh complex in Cambodia, and Wynn Macau Ltd, via its two casinos in Macau, are likely to feel the “biggest impact” on earnings from a potential regional decline of the VIP segment, says a Monday note from the Morgan Stanley banking group.
The memo was in the context of the detention in Macau of Alvin Chau Cheok Wa, boss of junket brand Suncity Group, on suspicion of organising illegal gambling for Chinese customers, including online gambling via the Philippines.
According to a number of industry analysts, Suncity Group was in pre-pandemic times the largest junket in the world by turnover. It accounted for around 45 percent of the junket market in Macau based on 2019 figures, according to several brokerages. Suncity Group also had a footprint in the VIP segment in a number of casinos in the Asia-Pacific region.
“We project the biggest impact on Naga[Corp] and Wynn Macau [Ltd] after calculating EBITDA exposure to the VIP segment for companies in Macau, Singapore, Cambodia and the Philippines,” said Morgan Stanley analysts, referring to earnings before interest, taxation, depreciation and amortisation.
NagaCorp, which runs the NagaWorld complex, a casino monopoly in the Cambodian capital, had the “highest EBITDA exposure to the VIP segment within our coverage, at 45 percent in 2019,” said the memo from analysts Praveen Choudhary, Gareth Leung and Thomas Allen.
They added: “We also estimate that 25 percent” of NagaCorp’s 2019 EBITDA “came from Chinese tourists in the VIP segment.”
This, they suggested, was due to NagaCorp’s “high revenue exposure to VIP,” at 72 percent of its casino gross gaming revenue (GGR), and higher available margin, i.e., 24 percent, “reflecting lower tax rates and operating expenses,” relative to rival operators in the region.
Morgan Stanley assessed that in the Macau market between “6 percent to 21 percent of operators’ property EBITDA in 2019” – i.e., in pre-pandemic trading – was from the VIP segment, with “the majority” of it “from Chinese tourists”.
The banking group estimated Wynn Macau Ltd’s exposure to junket business had been highest in the Macau market in 2019, at 21 percent of property EBITDA.
In addition, Galaxy Entertainment Group Ltd, at 13 percent of property EBITDA, and Melco Resorts and Entertainment Ltd, at 10 percent, had “higher EBITDA exposure to VIP” business in Macau versus peers, “while Sands China Ltd “had the lowest percentage,” i.e., 6 percent of property EBITDA, “by our estimates,” stated Morgan Stanley.
Morgan Stanley suggested that in the Philippines, Bloomberry Resorts Corp, promoter of Solaire Resort and Casino in Manila, and City of Dreams Manila, operated by a unit of Melco Resorts, got “17 percent and 10 percent of their 2019 EBITDA from the VIP segment”.
The analysts asserted: “Only 10 percent and 7 percent of their EBITDA, respectively, came from Chinese VIP customers.”
That was due to high local demand for gambling services; in Bloomberry’s case, representing “approximately 70 percent” of 2019 EBITDA.
The Morgan Stanley team said that in Singapore’s casino duopoly, where Macau-style junkets were not permitted, Genting Singapore Ltd, operator of Resorts World Sentosa, and a Las Vegas Sands Corp unit that runs Marina Bay Sands, generated collectively “roughly 7 percent to 8 percent” of their Singapore property EBITDA from the VIP segment.
“Out of that, only half is from Chinese VIP customers,” suggested the analysts.
Singapore operators had higher exposure to non-gaming revenues – at 26 percent of gross revenue – than regional peers, said Morgan Stanley.
