Concerns that China’s economic softness could negatively impact the Macau gaming market have been “overemphasized”, as evidenced by the absence of any negative drag on Macau’s recent recovery, according to research platform Seaport Research Partners.
The assessment formed part of a Monday note in which Seaport and its veteran analyst Vitaly Umansky commenced coverage of the global gaming industry, including all six Macau operators and the three US operators with Macau exposure.
In doing so, Umansky described Macau as a “long-term secular growth story” that is “stronger, less risky, and likely less volatile” thanks to its recent pivot away from a junket and VIP-focused market to one centered on mass.
“While nearer term uncertainty stems largely from China’s economic softness and geopolitical concerns, the economic softness in China has not been a negative drag on Macau recovery and the geopolitical concerns are overemphasized,” the analyst wrote.
Umansky noted that Macau does face some capacity constraints due to limited hotel room capacity, particularly if the government doesn’t allow for new development, but added “under such a scenario, the industry’s pricing power would be further strengthened … ‘build it and they will come’ is a long-term viable label to put on Macau.”
In the short-term, Seaport is forecasting a CAGR of 18% for Macau between 2023 and 2025, driven by 19% growth in mass and 7% in VIP.
On the rise of mass gaming, the platform said, “VIP should represent only ~11% of total GGR [through 2025], dropping even further in the second half of the decade. The profit contribution from VIP, already less than 20% in 2019, is now below 10% in the market.
“Mass (cash play with no credit offered to players) is where the revenue growth and profitability in gaming is driven. Mass is forecasted to grow 25% in 2024, dropping to 12% in 2025. Longer term, we forecast mass GGR to be able to achieve over 10% growth, but there may be constraints on this due to hotel room capacity if hotel room expansion in Macau is limited (growth could easily be higher if more hotel room capacity is opened in Macau or hotel rooms open in Hengqin with easy Macau access – something for the future).
“Mass is already above 2019 levels, and we expect mass to rise to nearly 115% of 2019 mass GGR and up to 127% in 2025.”
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