The Macao SAR Government will take a bigger hit to its coffers than the city’s casino concessionaires from the decline of junkets, according to investment bank Morgan Stanley, with tax take set to fall by up to 33% from 2019 levels.
While there has been no official word from operators as yet as to any plans to cease working with junkets on a sector-wide level following the arrest of Suncity Group CEO Alvin Chau and the closure of the company’s Macau VIP rooms, Tak Chun Group – historically the second largest VIP promoter after Suncity – confirmed with IAG on Tuesday that it had received official notice of suspension cooperation agreements from two of Macau’s six concessionaires.
It has been widely rumored that all six are in the process of ending any and all relationships with junkets before the end of the year.
In a note, Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Thomas Allen said the loss of junkets would be far from catastrophic for concessionaires, who reported VIP contribution of just 39% of GGR and 9% of EBITDA in 2019, down from its peak of 70% of industry GGR and 32% of EBITDA in 2013.
Those numbers had fallen even further since COVID-19 to just 23% of industry GGR in 3Q21 and less than 5% of EBITDA through the nine months to 30 September 2021.
By comparison, the VIP sector still contributed 33% of Macau tax revenue in 2019 (albeit down from 61% in 2013).
“VIP contributed cumulative US$228bn of revenue (~US$20bn of EBITDA) and US$89 billion of tax for the Macau government in the last 15 years,” the analysts wrote. “Thus, VIP has been more important for tax revenue than for the concessionaires’ EBITDA.
“This suggests seriousness in removing illegal activities and cross border money movements, and could have some spill-over impacts on premium mass.”
The issue of premium mass, which offers far more attractive margins, appears to be of more immediate concern for operators.
“Premium mass per person spending is still much higher than [the] daily ATM limit or overseas withdrawal limit for outbound mainland tourists,” Morgan Stanley added.
“In 2022/23, we expect VIP to contribute less than 10% to 20% of total revenue, and less than 5% of EBITDA. On the positive side, industry could see valuation rerating due to better quality of revenue/earnings.”
