Weak VIP growth squeezes casino revenues in Macau

Analysts downgrade expectations for growth this year, but look to pick-up from new venues

PUBLISHED : Wednesday, 16 July, 2014, 1:15am
UPDATED : Wednesday, 16 July, 2014, 5:04am

Fitch Ratings and Barclays cut their estimates for full-year gaming revenue growth in Macau to 10 per cent yesterday due to weakness in the VIP segment of the market.

Fitch had previously forecast full-year growth of 12 per cent and Barclays had predicted 13 per cent. The revisions follow a 3.7 per cent year-on-year drop in gaming revenue last month, the first in five years.

"A lot of people are revising down," Standard & Poor's credit analyst Joe Poon said. "At the beginning of the year people were seeking high double-digit but now it's fallen to low double-digit."

Fitch said: "Assuming low single-digit declines in VIP and 25 per cent to 30 per cent mass growth for the remainder of the year, full-year revenues will come in at around 10 per cent. Mass market will continue to be supported by longer-term drivers such as improved transportation infrastructure and growing middle-class in China, while VIP is more sensitive to macroeconomic factors in China.

"The Chinese government recently indicated that they will likely not employ an all-out stimulus, but will instead take a more measured approach, including providing access to financing and investing in infrastructure to keep broader economic growth at around 7.5 per cent."

Overall Macau gaming revenue in the first half of the year was 193.09 billion patacas, an increase of 12.6 per cent year on year. Last month's figures were slightly impacted by the start of the World Cup, which diverted some of the betting away from casinos.

Analysts expect a smoking ban on mass floors, which comes into effect in October, will have a small impact on the mass market side. However, smoking will still be allowed in private rooms.

Barclays said VIP growth could ramp up again next year when a slew of new casinos open up on the Cotai Strip.

"We expect VIP table count to increase again on new supply [and secondly] we believe confidence in junkets is likely to be restored over time and that smaller junkets might gradually find it easier to get funding," analyst Phoebe Tse wrote, adding that casino operators had said construction work remained on schedule.

However, Poon said the new supply of casinos would not be seen until mid to late next year.

"I think [gross gaming revenues will] be around the 7.5 to 12.5 per cent range [next year] because those openings are not going to happen until the middle of next year and possibly Melco Crown's opening of Studio City could be late next year so there will be some support to the growth," he said.