Financial services firm Morgan Stanley predicts that the recent crackdown on the use of Union Pay POS terminals in Macau pawnshops will have minimal impact on operators, despite figures showing that Premium Mass – the segment that relies most heavily on Union Pay – now accounts for 23% of the city’s gaming revenue.
In a Monday note, Morgan Stanley analysts Praveen Choudhary and Jeremy An watered down concerns over the impact of the crackdown, which saw a number of POS terminals removed from pawnshops located inside Cotai integrated resorts and the Monetary Authority of Macao issue a warning to merchants that they risk losing their “business relationship” with local banks.
The “Union Pay concern is overblown in our view,” Morgan Stanley said. “Historical efforts by central banks and monetary authorities (such as reducing the daily and annual ATM withdrawal limit, connecting ATM cards to IDs 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. We expect this to be similar.”
Choudhary and An also break down Premium Mass by operator, singling out Sands China as raking in the most annual revenue from the segment at US$2.2 billion in 2017 or around 29% of its GGR.
MGM China relies most heavily on Premium Mass in terms of revenue split with 31% of its 2017 revenue coming from the segment. In total, Premium Mass accounted for US$7.7 billion of Macau GGR last year.
“For the whole industry, we estimate that 23% of GGR and 32% of EBITDA comes from this segment. However, not all of them need cash from pawnshops and the impact should be minimal and for a short period,” the analysts said.
