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Fitch: Gaming revenues up 12 pct in 2017

Ratings agency expects ‘about equal contribution’ of VIP and mass to revenues

In the wake of the 16.8 per cent year-on-year increase in VIP gaming revenues seen in the first quarter of the year, reaching MOP35.49 billion (US$3.8 billion), ratings agency Fitch expects gaming revenue in the territory to see a 12 per cent year-on-year increase for the year, as reposted by Reuters.
The group points in particular to the growth in the VIP segment as ‘exceeding Fitch’s expectations’ in the first three months of the year, with the uptick ‘possibly attributeable . . . [to] . . . stronger economic indicators on the Mainland’ and ‘players getting acclimated to China’s corruption crackdown initiatives.’
In addition, the group points to ‘China’s authorities’ heightened crackdown on casino marketing by foreign companies’ which it notes as being ‘so far those based outside Macau’ – alluding to the arrest of 18 Crown Resorts staff in the Mainland late last year.
Despite VIP revenues outweighing those of the mass segment in the first quarter, at 55.9 per cent of total revenues, according to data from the Gaming Inspection and Co-ordination Bureau (DICJ), the ratings agency expects ‘about equal contribution from VIP and mass market revenue toward achieving Fitch’s 12 per cent growth forecast.’
The forecast takes into account ‘the possibility that the tightening monetary policy and increased real estate restrictions may slow economic growth on the Mainland.’
‘There is a good amount of headroom for growth permitting regulatory and other conditions,’ notes the agency, as current gross gaming revenue currently ‘has a level similar to that of 2010.’ However, given the ‘opaque nature’ of VIP, forecasting the MSAR’s gross gaming revenue ‘with a fair amount of certainty is difficult,’ leading the group to ‘remain cautious.’

Mass
The drivers of mass will include ‘healthy consumer spending,’ with the ratings agency predicting 7.5 per cent annual growth in the area for 2017. The prediction comes on the heels of the International Monetary Fund’s estimate for a 2.0 per cent year-on-year increase in consumer prices, while local Statistics and Census Service (DSEC) data show a 5.45 per cent reduction year-on-year in the Tourist Price Index in the first quarter of the year.
Additionally driving tourist spending will be ‘increasing room capacity, which encourages longer average length of stay’ as well as potential from an ‘under-penetrated’ mass market in Asia Pacific in the longer-term.
Recently opened casinos’ results are ‘performing largely in line with Fitch’s expectations,’ says the report, noting ‘roughly US$100 million–US$200 million of annualized incremental EBITDA (earnings before interest, taxation, depreciation and amortization)’ for both Wynn Resorts and Las Vegas Sands (parent company of Sands China) – ‘after accounting for cannibalization at the existing properties’.
Expectations are for ‘incremental benefits to improve’ for the Cotai properties throughout the year ‘as the market improves’ and as construction from the light rail transport system (LRT) and MGM Cotai construction winding down ease access to Wynn Palace.

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