The slowing of the Chinese economy will see Macau’s VIP gaming revenue continue to decelerate over the remainder of 2018, but there will be no such concerns in the mass and premium mass segments where overnight visitation and average player spend will continue to grow.
So say Sanford C Bernstein analysts in a research note released on Tuesday titled “What Slowdown? Identifying and Sizing (or Denying) the Slowing of the Chinese Economy.” Proposing that there is no concrete evidence of any definitive slowing of China’s economy, the Bernstein team contends that VIP deceleration in Macau will nevertheless be significant over the second half of 2018 – particularly in Q4 – due to higher-end players being “more impacted by concerns around the Macro China environment.”
However, the industry’s positive growth story will continue on the back of mass and premium mass, buoyed by new hotel and IR openings in recent months and the finalization of a number of long-awaited infrastructure projects (most notably the Hong Kong-Zhuhai-Macau Bridge).
“Mass should continue to show modest growth as overnight visitation grows, helped by new supply expansion and improved transport,” Bernstein says.
“Average spend should also increase as premium mass continues to outperform base mass. Mass has been largely driven by increasing overnight visitation and increase in average spend per visitor, supported by modest base mass growth.
“The new supply that came on line in 2015-2016 has helped drive overnight visitation as Macau hotel occupancy rates have strongly rebounded with occupancy rate around 90%. Consequently, Mass GGR per visitor is up nearly 12% year-on-year in 1H18.”
While Macau’s limited hotel room inventory remains a potential headwind for growth across all segments, the long-term view for Macau continues to look rosy.
“During the short to medium term, these drivers will likely create headwinds for GGR, leading to deceleration in growth,” Bernstein said. “However, over the long run, the improvements in transportation infrastructure and the opening and ramp up of new capacity support long-term growth in mass (and premium mass, in particular) – the execution of a supply driven market. With strong premium consumer growth in China forecasted over the long-run, Macau’s long-term growth story remains intact.”
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