Macau VIP Resurgence Is Multi-Year Slog, Say Analysts

Posted on: November 20, 2020, 10:43h. 

Last updated on: November 20, 2020, 11:33h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Recent gross gaming revenue (GGR) and traffic data points indicate things are trending in the right direction for Macau. But some analysts believe it’s going to be a while before high-end players materially contribute to the special administrative region’s (SAR) recovery.

Macau VIP
Tourists walk by Wynn Macau. A research firm says it will be a while before VIP revenue recovers. (Image: South China Morning Post)

With Beijing clamping down on cross-border money transfers and controversy still swirling around the junket business, VIPs remain skittish about returning to the world’s largest casino hub. That puts the rebound burden squarely on the shoulders of the mass market and premium mass segments.

VIP in 2021 — and to a lesser extent some premium mass — could be negatively impacted by continued tighter capital controls and customer and agent concerns about dealing with junkets,” said Bernstein in a new research report.

In the third quarter, VIP baccarat GGR on the peninsula slid to $293 million, a year-over-year decline of 92.5 percent. Well-heeled gamblers playing that table game, which is beloved in Macau, drove a market share of almost 48 percent in the July through September period. That’s while mass market baccarat accounted for 38.40 percent share.

Uncertainty Lingers

Amid persistent uncertainty about the state of affairs with affluent Chinese gamblers, Bernstein says it’s not assuming there will not be a credible VIP rebound prior to 2023.

That’s a long timeline, particularly against the coronavirus backdrop, and is extended by junket operators’ concerns about Beijing’s money transfer policy. In recent months, junket patrons, who are often VIPs, are requesting withdrawals of their funds. That’s prompting the operators to pull billions of Hong Kong dollars from accounts held at Macau gaming properties.

Casino companies are looking to allay those concerns, with some executives noting that because Macau is Chinese territory, money moved from the mainland to the SAR isn’t considered an international transfer.

Operators potentially sensitive to weakness in VIP spending include Melco Resorts & Entertainment and Wynn Macau, while rivals Galaxy Entertainment and Las Vegas Sands derive larger slices of their business from mass and premium mass patrons.

Some Good News

While Macau operators delivered a dismal batch of third-quarter results, there was one positive commonality. Many said they were on pace to realize break-even earnings before interest, taxes, depreciation and amortization (EBITDA) in October on far less revenue than was being generated a year earlier.

Bernstein notes five of the six Macau concessionaires achieved break-even EBITDA in October, and are on pace to do so again this month, with SJM Holdings likely to join the party by the end of the year. The analysts see a decent growth trajectory for the SAR over the next several years.

“Longer term, we expect Macau GGR to grow at a 2 percent compound annual growth rate (CAGR)” judged over the period 2019 to 2023, driven by 6 percent CAGR in mass (in particular, premium mass) while negatively impacted by -4 percent CAGR in VIP,” according to the research firm.