Inside Asian Gaming

INSIDE ASIAN GAMING | October 2012 14 does seem to have slipped a gear or two. Grant Bowie, chief executive of MGM China Holdings (2282.HK ), which is bulking up this year with US$50 million in new table capacity, a lot of it targeting the higher end of the mass market, identifies what he calls a period of junket “retrenchment and stablization”—consolidation, others are calling it, an opportunity for a handful of large, well-capitalized promoters, those in a position to weather a credit crunch, to absorb hard-pressed smaller competitors and their clienteles and secure more of the best VIP rooms in the choicest locations. It would be good for Macau if this happens, says Nicholas J. Niglio, chief executive of Neptune Group, a major Hong Kong-listed investor in several VIP room operations. “I’m happy to see that. Because it’s been very difficult for the small junkets to partake in this market. When you don’t have much and you lend out a little bit, and it’s not property scrutinized as much as you would want it to be, next thing you know you’re looking for somebody to help you, and that’s where the slowdown has been.” Tipping the Cap The slowdown has been something of a moving target, though. Unofficial numbers show lower rolling chip turnover year on year in June, historically a weak month, offset by substantially higher hold and total revenue (officially) up 12.2% year on year. In July, lower turnover and merely average hold—in a month hammered at one point by a typhoon that halted travel—combined to drag down growth to 1.5%, and it would have been worse if not for a 31% increase in table revenue on the main floors. But thenunderlyingstrengthon themass side has been the story throughout 2012. Main floor table revenue year on year was up 24.4% inMay, 30% in June, up 35.7%over the first six months, raising its percentage share of the total market by 128 bps. Revenue from machine games rose 18.7% over the same period. The April opening of the casino at Sands Cotai Central may have contributed some on the mass side, but the added VIP capacity would have been more difficult to absorb for a market that isn’t growing at historical rates (although some of those tables are reallocations from the company’s existing inventory, as are some on the main floor). Certainly the property performed impressively for listed operator Sands China Holdings (1928.HK ), contributing in 81 days a full 9.5%of the company’s total net gaming revenue in the first half. August wasn’t much more impressive than July. Rolling chip turnover was down 7% compared with 2011. Every operator experienced year-on-year declines. But above-average hold and an improvement in volume over July combined with an extra Friday to produce a third consecutive month of increasing revenue on the VIP side. Mass- market table revenue was up a robust 19% year on year to $859 million, and the month ended happily with a daily gross of US$105 million, eclipsing May as the second-best month ever for revenue per day (after last October’s $108 million). As for September, analysts weren’t overly concerned about the market’s ability to absorb the opening of a second casino at Sands Cotai Central (200 live tables reallocated from existing inventory and 280 ETG positions). They were forecasting gains of 10-20%. Clearly, they were expecting another substantial increase in main floor revenues and perhaps some sign that the high rollers are back in force. They got it essentially right. Mass-market table revenue was up 30% year on year, VIP up 7%. Total gain for the month was 12%. Sands Cotai Central is the last significant new supply until the next wave of openings at the Cotai resort district in 2015. An expansion at Casino Ponte 16 at the Inner Harbour on the city’s peninsula side is scheduled for completion in 2014 and will include some gaming square footage but not much, or so the letter of the law would imply, the government having imposed Cover Story Sands Cotai Central is the last significant new supply until the next wave of openings at the Cotai resort district in 2015.