By Ben Blaschke
Macau’s VIP market might be enjoying a welcome resurgence but it will soon become a race between two with only Galaxy Entertainment Group and Wynn Macau attracting sufficient market share to maintain a VIP focus, according to a new report from Brokerage Sanford C Bernstein.
Titled “A deep dive into Macau’s VIP industry”, the report predicts the increased volumes currently being experienced by Macau’s operators – which saw VIP revenue up by 27% year-on-year in March – will be short-lived with negative growth of -3% on its way for the second half of the year. It also forecasts a more steady Compound Annual Growth rate of ~4% through to the end of the decade.
However, its reliance on strong Chinese liquidity and the volatility of Chinese government policy will make the VIP segment increasingly challenging going forward for those with less market share. As of 16Q4, Galaxy accounted for 26% of Macau’s VIP gross gaming revenue with Wynn next in line at 17%.
“The VIP segment will continue to remain a significant portion of Macau GGR; however, only a few operators should be able to achieve outsized market share capture (and thus above market growth in VIP in the future) and be able to profit from a continued focus on VIP,” the report, penned by Vitaly Umansky, Zhen Gong and Yang Xie, says. “Looking at recent VIP performance in Macau, Galaxy and Wynn have the most VIP exposure on a top line basis.”
The number of VIP tables in Macau has fallen by around 35% – or almost 800 tables – since its peak in 2013 and despite VIP playing a major role in the city’s recovery it is mass market that will increasingly drive growth long-term.
Bernstein is tipping VIP to come in at around +17% for the first six months of 2017 but only +7% for the full year due to the likelihood of reduced liquidity.
“Liquidity is crucial in the VIP segment as it allows easier and less expensive credit play by providing junkets with cheaper and more easily available capital to extend credit to players,” the report said. “In recent quarters, China has shown increasing monetary expansion and strength in the real estate market. However, we see signs that the strength in China’s real estate market is beginning to slow down, partly driven by cooling measures on real estate and a tightening credit cycle.
“Such policy initiatives will likely contribute to some headwinds. Further, capital outflows have been supportive of the VIP GGR rebound. However, China policy impediments on outflows create additional headwinds for continued robust VIP growth.”
