Threat to the Macau premium mass gambling segment from regulatory action against certain China UnionPay Ltd transactions at either pawnshops or some jewellery shops on casino premises and beyond is in likelihood “overblown”, says a Sunday memo from Morgan Stanley Asia Ltd.
Last week a number of brokerages had mentioned that premium mass play – involving high minimum bets but for cash rather than the credit typically extended to VIP gamblers – could account for 20 percent or more of Macau casino gross gaming revenue (GGR), and be the segment most affected by action against UnionPay transactions.
But Morgan Stanley analysts Praveen Choudhary and Jeremy An wrote in their latest market update: “For the whole industry, we estimate that 23 percent of GGR and 32 percent of EBITDA [earnings before interest, taxation, depreciation and amortisation] comes from this segment. However, not all of them need cash from pawnshops and the impact should be minimal and for a short period.”
They added: “UnionPay concern is overblown in our view: historical efforts by central banks and monetary authorities (such as reducing the daily and annual ATM withdrawal limit, [and] connecting ATM cards to identity cards, and implementation of facial recognition) have had minimal impact on GGR, while making the industry structure much more robust and sustainable in the long term.”
The Morgan Stanley team suggested that were weakness to be shown in Macau GGR for the remainder of June, it was more likely to be associated with “World Cup impact” and what the analysts termed “second-quarter seasonality”.
“Since 2012, Macau has underperformed the Hang Seng Index every year in the second quarter (except for 2013 and 2017), and so far, [second quarter] 2018 has been similar, trailing 3 percentage points,” wrote the analysts.
The analysts added, referring to the FIFA World Cup 2018, an international soccer tournament in Russia, and the distraction it might cause for Macau gambling customers: “The upcoming World Cup (15 June to 15 July) could result in weaker than expected GGR growth during the summer.”
But the institution said there remained room for surprise on the upside, as the producer price index (PPI) in China had improved by 0.7 percentage points sequentially in May.
“The producer price index rebounded in China in May, to 4.1 percent from 3.4 percent in April: that beat consensus expectation. Historically, we have seen strong correlation between PPI in China and GGR in Macau,” wrote the Morgan Stanley team.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China