Macau Rolls A Six

The city’s VIP gaming sector may have returned to year-on-year growth in September, analysts believe, but they are still not really that positive about projecting the sector’s outlook.
Last month, the city’s total casino revenue posted a second consecutive month of growth following a 27-month slump, with figures up by 7.4 per cent year-on-year to MOP18.4 billion (US$2.3 billion), official data from the Gaming Inspection and Co-ordination Bureau reveals.
Union Gaming Securities Asia Ltd. analyst Grant Govertsen indicated in his latest research note that gaming markets should start seeing growth in Chinese VIP volume, given South Korean gaming operator Paradise Co. has posted a year-on-year increase of one per cent in its September Chinese VIP volume – the first growth in 24 months.
“While not exactly apples-with-apples given that Chinese VIP gamblers in Korea tend to be of much lower value than Chinese VIPs in Macau, we are encouraged that any established market is beginning to see growth in Chinese VIPs,” the analyst wrote in a note on Wednesday.
He believes VIP revenue in Macau should also have much improved and could be on the verge of posting growth again. “It’s possible that September saw very modest year-on-year VIP growth on the heels of new property openings,” he stated.
Official data on the breakdown of VIP casino revenue for the third quarter will only be announced by the local gaming regulator in the middle of this month. But Mr. Govertsen is not the only analyst estimating the high-roller sector has started to posted year-on-year increases in revenue.
In a research note released earlier this week, analysts at Morningstar Asia Ltd shared a projection that the increase in September gaming revenue “appears to be broad-based across the VIP and mass segments.”
“Without an official breakdown between VIP and mass revenue, we estimate that both mass and VIP revenue increased by at least mid-single digit rates on a year-over-year basis,” the firm’s analyst Chelsey Tam wrote.
Softly, softly
Nevertheless, Grant Govertsen of Union Gaming said his firm still remains cautious about the outlook of the local VIP gaming segment. “Even more so than other jurisdictions,” he stated.
‘[It is due to] the ongoing dynamic of junket operators seeking to not only take customers out of Macau to jurisdictions that offer better economics, but also given that certain Macau junkets are attempting to transition to the principal model and become casino operators themselves in other jurisdictions,” he opined.
The firm is maintaining its forecast that Macau’s VIP gaming revenue will drop another four per cent year-on-year in 2017, although modest growth is expected to during the second half of next year.
Meanwhile, analysts at Morningstar say they have turned “slightly more positive” on the junket business given the continuous improvement in the segment’s liquidity.
“According to our checks confidence in the safety of the deposits in the junket system has continuously improved since the New Year, helping liquidity and thus VIP rolling in the junket market,” the firm’s analyst, Chelsey Tam, wrote.
“The funding is coming from various individuals instead of just one or two big depositors, which leads us to think that it is more broad-based and more sustainable,” she added.
But the analyst also noted that confidence in deposits in the junket system could erode again if there is another theft incident occurs.
“However, as junket consolidation continues, smaller junkets with poorer resources, infrastructure, and compliance systems have been going out of business. This should reduce the likelihood of another theft in the junket system,” she reckons.
Morningstar also maintains its prediction that VIP revenue will post an annual year-on year decrease of 16 per cent for this year.
Suncity going from strength
to strength
On the other hand, the research note of Union Gaming indicated that junket operator Suncity Group might have been one of the few to experience a significant increase in volume during the first few days of Golden Week.
“We’re hearing that Suncity, Macau’s no.1 junket by market share, has experienced a significant increase in volume that has translated into an even greater share,” Govertsen wrote, adding that other junkets in the market, on the contrary, have experienced much quieter levels of business.
“This is not overly surprising to us as we expect Suncity to keep getting bigger . . . It’s difficult, however, to extrapolate Suncity’s success this Golden Week to any particular casino operator given that of all the operators Suncity has a significant presence,” the analyst concluded.
By contrast, junket promoter Iao Kun Group has shut down five of its six VIP rooms in Macau in the space of a month, a tend the Union Gaming analyst anticipates to “be repeated endlessly” by other smaller junkets in the city.
But he added that the visit of China’s Premier Li Keqiang to the Special Administrative Region next week might potentially drive a sharp year-on-year decline in VIP revenues for the week, unwinding the month-to-date casino revenue growth for October that has benefited from Golden Week.