Record Macau player promos press margins: analysts
Promotional allowances paid to players by Macau casino operators in order to win and keep their business “rose to a record-high level” in the fourth quarter of 2016, said a Sunday note from banking group Morgan Stanley. It added that if the trend continued it could pressure margins in 2017.
Citing operator data and proprietary research, the institution said it estimated quarterly promotional allowances as a percentage of quarterly Macau mass table revenue had risen to approximately 12.5 percent for the final three months of 2016, compared to approximately 9 percent in the second quarter 2014. That latter quarter was a low point for such allowances in the three years from January 1, 2013, indicated the research.
“Promotional allowances reached an all-time high, driven by higher reinvestment in premium mass players in Cotai,” said the research from the bank’s gaming analysts Praveen Choudhary, Alex Poon and Thomas Allen. They were referring to a segment of mass-market table players that typically bet in high hundreds or even thousands of Hong Kong dollars per hand but are not part of casino VIP rolling chip programmes. The analysts also noted that advertising and marketing expenses also increased significantly in the second half 2016, “rising for the first time in two years”.
“Together with VIP revenue growing faster than mass, we see margin pressure in 2017,” added the Morgan Stanley team, referring to the Macau market as a whole.
Investment community estimates on the relative contributions of the VIP and mass-market segments to Macau’s casino gross gaming revenue (GGR) for the first two months of 2017 are based on unofficial industry figures. The local regulator, the Gaming Inspection and Coordination Bureau, only publishes that data on a quarterly basis.
Nonetheless Morgan Stanley said in its note: “We believe mass growth will need to be 10 percent to maintain margin in 2017; even then, companies with potential market share losses could see negative operating leverage.”
A note on Monday from brokerage Sanford C. Bernstein Ltd estimated 2017 market-wide Macau GGR would expand by approximately 8 percent year-on-year, driven by mass-market growth of approximately 11 percent, and VIP growth of approximately 5 percent.
This would be “coupled with” industry-wide growth in operator earnings before interest, taxation, depreciation and amortisation of approximately 11 percent, said Sanford Bernstein analysts Vitaly Umansky, Zhen Gong and Yang Xie.
“For first-quarter 2017, based on our observations of the market, we are estimating GGR growth of over 10 percent, led by approximately 12.5 percent growth in VIP and approximately 9 percent growth in mass, a slight improvement to our expectations set in January,” they added.
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