Union Gaming Research Macau released the following note on 26th June:
Macau IVS restriction / IVS expansion and Union Pay
Over the weekend, a Chinese language newspaper in Macau suggested that two things could negatively impact the market, namely 1) a stricter enforcement of visa restrictions with respect to the Individual Visit Scheme (IVS) and 2) a lowering of the foreign withdrawal limit on UnionPay cards. We note that this local newspaper is the only outlet to make these suggestions. No other media, government official or casino operator appears to have any knowledge that these events are, indeed, occurring.
To the contrary, the same newspaper today has gone in the other direction and is reporting that the IVS might be broadened to include a greater number of persons in the Guangdong region, while also expanding the number of persons eligible for multi-entry visas to Macau. Importantly, this is also being echoed by media in the PRC.
While the recent pullback in shares seems to present a buying opportunity in our view, we would expect the US and Hong Kong-listed gaming companies to remain very sensitive to unverifiable headlines such as these in the near-term. This is especially the case when rumors are overlaid on top of real-world data points such as the slow-down in GGR growth in May and the decline in visitation, especially with the impact of the 2008 visa restrictions in mind.
Macau IVS restriction
According to the article, the PRC has or will begin to enforce the IVS policy in a tight manner. When taken in the context of the decline in visitation in May, it might appear that there could be some substance to the speculation. However, we believe that operators are generally experiencing y/y increases in visitor volumes in June, while GGR growth is trending up nicely.
The reported enforcement of IVS policy would essentially allow 3 trips to Macau per year instead of 4. We note that it would be unusual for the PRC as a whole to implement a universal IVS policy. Traditionally, the IVS policy (and any changes thereof) has been administered at the provincial or municipal level, so this would suggest a significant and perhaps unlikely change in our view. Further, the IVS isn’t the only way for a mass market customer to enter Macau. Should an IVS policy change occur that would allow only 3 visits to Macau per year, there is nothing stopping that same customer from joining a tour group to return to the market with a higher frequency, albeit at some level of inconvenience for the customer.
We also note that any change to IVS policy should not have any impact whatsoever on the ability or frequency for VIP customers to enter Macau. Any change to IVS would only impact the mass market. Simply put, VIP players have the resources (human and monetary) to essentially enter Macau at will.
UnionPay
The newspaper also speculated that UnionPay, China’s bankcard system, has lowered the daily foreign transaction limit to 1mm RMB (USD157,000), from either 5mm or 10mm RMB (~USD800,000 to 1.6mm). Like with the IVS policy, there is no verification that this actually reflects a new UnionPay policy.
Let’s assume for a minute that the lower withdrawal limit is accurate. The question then becomes, which customer is impacted? Most customers to Macau can immediately be eliminated as the typical mass market customer gambles nowhere near 1mm RMB per trip, while the typical VIP player gambles on credit that has been extended to him. That leaves a very small slice of very high-end premium mass customers, as well as select low-end direct VIP customers. We would find it highly unlikely that these customers wouldn’t have multiple accounts from which they could draw 1mm RMB from each. We find it equally unlikely that such high-net-worth individuals wouldn’t have access to other accounts or assets that have been placed offshore. Simply put, we believe there are work-arounds for this small segment of customers to access funds if need be.
Macau IVS expansion – with government backing
Noted above, the same newspaper today suggested that the IVS might be broadened to include a greater number of persons in the Guangdong region, while also expanding the number of persons eligible for multi-entry visas to Macau. Unlike the IVS tightening and UnionPay claims, the IVS and multi-entry expansion have government backing from Guangdong, Hong Kong and Macau and are also being reported in the PRC media. Yesterday, the three governments announced a regional cooperation plan that, among many other things, would ultimately expand the multi-entry visa policy and allow non-registered residents of Guangdong (i.e. persons who are now living in Guangdong but were not born there) to apply for the IVS system.
