Macau’s VIP sector will show “significant growth deceleration in 2018” according to brokerage Sanford C Bernstein, instigated by tighter capital controls and anti-graft measures in mainland China and greater scrutiny of Macau’s junket business.
In a Friday note, Bernstein analysts Vitaly Umansky, Zhen Gong and Cathy Huang stated that there is “rising risk” with respect to the sustainability of VIP growth in Macau, which grew by an estimated 26% in 2017 to smash expectations.
“During 2017, VIP GGR was stronger than our original expectations,” Bernstein said.
“VIP strength was largely driven by stronger than expected macro environment, robust liquidity, and strong consumer/business confidence environment coupled with a robust junket capital base with increasing credit issuance to players.
“Although it is likely to continue to show strength over the next few months (or even the next two quarters in 2018), the VIP model is likely to face structural headwinds in the latter part 2018E from instituted cooling measures on Chinese real estate, a credit tightening in China, an increasing regulatory environment in Macau and continued Chinese government focus on capital outflows in China.”
Bernstein added that the above factors are likely to create problems for both VIP and “to some extent” the higher end of Premium Mass.
However, the brokerage still expects Macau’s VIP sector to grow by around 8% in 2018 while mass market revenue is tipped to increase by 11% year-on-year as its importance to the city increases.
“While growth will decelerate from 2017, 2018 will still show respectable growth (driven more by mass) and long term secular growth drivers are still in place,” it said.
Bernstein pointed to Melco Resorts and Wynn as its top picks for the year, with Melco’s rise to be driven by continued ramp up at Studio City and the launch of Morpheus hotel in 2Q18.
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