Inside Asian Gaming

SEPTEMBER 2018 INSIDE ASIAN GAMING 19 a strong VIP growth spurt, we continue to view the industry as a secular growth story driven by relatively stronger mass,” Sanford Bernstein Senior Analyst Vitaly Umansky writes. “This dynamic has become more apparent in Q2, as Macau experienced deceleration in VIP growth relative to mass as higher-end customers were more impacted by concerns around the Macro China environment.” Umansky, supported by Equity Analysts Zhen Gong and Kelsey Zhu, acknowledges that “headwinds” will slow gaming growth over the short to medium term. “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 forecast over the long run, Macau’s long-term growth story remains intact.” Bernstein characterizes recent sector share price drops as buying opportunities for “long-term investors who can stomach volatility.” GUSTY FORECAST About those headwinds: GGR growth of 12.1% in May and 12.5% in June fell short of expectations and July’s 10.3% was at the bottom of the most conservative forecasts. For the second quarter, year-on-year GGR growth slowed to 17.2% from 20.5% in the first quarter and VIP growth fell to 14.4% from 21.0% in Q1. Mass growth, on the other hand, accelerated from 19.9% in Q1 to 20.8% in Q2. Adjusting for reclassification of mass as VIP, Morgan Stanley Managing Director in Hong Kong Praveen Choudhary estimates VIP grew 15% and mass at 19% and says it’s the first time mass growth has beaten VIP since the third quarter of 2016. “That mass, once again, drove growth in Q2 is great news for operators as it has been the backbone of the recovery and is generally less sensitive to political winds,” Union Gaming Managing Director in Macau Grant Govertsen says. “That mass outpaced VIP is also an upside surprise relative to most expectations and, trade war fears notwithstanding, is reason to remain bullish on Macau.” Decelerating growth has several causes. Football’s quadrennial World Cup, which ran from 14 June to 15 July this year, traditionally pulls gamblers’ attention and funds away from casino games. The economy in mainland China, source market for two-thirds of Macau’s visitors and an overwhelming majority of gaming revenue – especially on the VIP side – slowed during the quarter, the renminbi weakened and US-China trade tensions grew. Macau concessionaires Sands China, Wynn Macau and MGM China have US roots and majority ownership. “While the trade disputes have not resulted in any specificmeasure on the Macau front, the ongoing tension and related concerns and caution may have deferred many VIP and premium player trips,” The Innovation Group Senior Vice President, International Operations Planning & Analysis Michael Zhu says. One thing that didn’t seem to be an issue was regulation. Mainland-inspired removal of UnionPay terminals from casino jewelry shops in June and a temporary shutdown of Gongbei border COVER STORY “That mass, once again, drove growth in Q2 is great news for operators as it has been the backbone of the recovery and is generally less sensitive to political winds.” – Grant Govertsen The 2018 World Cup in Russia kept gamblers away through part of June and July.