Concerns over the loss of VIP business from Macau to increasingly attractive regional destinations are unfounded, according to analysts from investment bank Morgan Stanley, who believe the SAR’s VIP sector will stage a recovery in the second half of 2019.
In a note examining Macau gaming as it relates to surrounding ASEAN nations, Morgan Stanley equity analyst Praveen Choudhary addressed the growing relevance of properties in locations such as Cambodia, the Philippines, Singapore and Australia, many of which offer much lower VIP gaming tax “which helps in casinos’ ability to pay higher commissions to junkets.”
Combined with the fact that the quality of many IRs has also improved significantly in recent years, the result has been more higher end VIP customers moving abroad – with Cambodia’s NagaWorld now raking in around 6.1% of the VIP volume of Macau compared with just 1.5% in 2015.
But Choudhary says the impression that Cambodia and the Philippines are taking share from Macau isn’t entirely accurate.
“If we add Singapore, Australia and Saipan, we realize that the percentage of VIP revenue from regions (other than Macau) has remained fairly stable at around 30% of the total VIP revenue in Macau,” he explains.
“Thus, one can not blame overseas leakage for recent Macau VIP revenue growth slowdown. On top of this, the majority of VIP gaming revenue in the Philippines is proxy betting, which is not allowed in Macau and thus it is not a result of cannibalization.
“We conclude that Macau VIP revenue could remain resilient despite leakage to ASEAN countries and should recover in 2H19.”
Choudhary added that some Chinese liquidity indicators have started turning around in recent months which, given his analysis that such indicators lead Macau VIP revenue growth by around six months, should result in VIP recovery being visible by 3Q19.
