Neptune Group Ltd, once one of the biggest investors in the Macau VIP gambling market, says it has learned one of its junket partners has had its right to run 14 high roller tables cancelled by a Macau licensee.
“The board… was informed by Hao Cai Sociedade Unipessoal Ltda… that Venetian Macau Ltd had on 31 May 2017 issued a written notice to Hao Cai to terminate the gaming promotion agreement dated 30 December 2016… with effect from 30 June 2017,” Neptune said in a Friday filing to the Hong Kong Stock Exchange.
Venetian Macau Ltd is the Macau entity that holds a Macau gaming licence on behalf of Sands China Ltd, which is in turn a subsidiary of Las Vegas Sands Corp.
“As at the date of this announcement, Hao Cai is currently operating junket business in relation to 14 VIP tables in the casino of the Venetian [Macao casino resort],” noted Neptune.
For the year ended June 30, 2016, revenue contributed to Neptune by the Hao Cai junket business amounted to approximately HKD115.1 million (US$14.8 million), or approximately 41.3 percent of Neptune’s total revenue, it said in Friday’s filing.
“The company is currently assessing the impact of the termination notice on the group,” the document added.
“Based on the preliminary assessment of the management, it is expected that the intangible assets in respect of the junket business of Hao Cai would be fully impaired as a result of the termination notice,” stated Neptune.
“As at the date of this announcement, other than Hao Cai, the other two junket operators are currently operating junket businesses in relation to a total of 10 VIP tables in the casino of Sands Macao and a total of 8 VIP tables in the casino of Grand Lisboa,” said the junket investor.
“So far as the directors are aware, and having made reasonable enquiries, these two junket operators are carrying out their businesses in the usual and ordinary manner,” Friday’s filing stated.
Against the tide
In its interim report issued in March, Neptune said that in the six months to December 31, 2016, it had rights in sharing profit streams from four junket businesses: Hou Wan; Neptune Ouro; Hao Cai; and Hoi Long.
The four combined, produced a profit stream entitlement to Neptune for the six months to December 31 amounting to nearly HKD468.58 million. That was only 38 percent of the nearly HKD1.23-billion profit stream entitlement – less amortisation and impairment loss – of the group as of July 1, 2015.
A number of investment analysts have noted that currently the Macau VIP market has been having something of a resurgence, following dramatic reductions in rolling volumes that were witnessed during China’s anti-corruption campaign of recent years.
Macau VIP casino gross gaming revenue (GGR) expanded by 16.8 percent year-on-year in the first quarter of 2017, according to data released in April by the local regulator, the Gaming Inspection and Coordination Bureau. That was around double the speed of mass market GGR growth.
Japanese brokerage Nomura said in a Thursday note commenting on the overall Macau GGR expansion of 24 percent in May: “Thus far, there has been zero government pushback on much stronger-than expected VIP growth. We’ve commented that growth of approximately 15 percent is not enough to trigger a meaningful government response. Growth of over 30 percent, though, could be another story.”
The institution added: “No one but the government knows, but at current lofty [stock] valuations (adjusting for the higher volumes), the risk of increased government scrutiny is higher.”
As of year ended June 30, 2016, Neptune had access to 55 VIP tables, according to its annual report filed in January.
A September 2015 note from brokerage Union Gaming Securities Asia Ltd estimated that at its peak, Neptune and then-associated businesses “probably accounted for 15 percent to 20 percent of total junket volume in Macau”, second only to Suncity Group.
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”Our own consensus is that any newcomers to this [junket] sector should be corporatised, and should be financially sound and able to commit a higher guarantee deposit”
Kwok Chi Chung
President of junket trade body, the Macau Association of Gaming and Entertainment Promoters