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Slow transition to mass

2016-2020 compound average growth rate: VIP - 4 pct, mass - 11 pct, overnight visitation - 10 pct and non-gaming - 11 pct, say analysts

While VIP will never lose its impact on the gross gaming revenues of the MSAR, analysts believe that mass is the future, with the shift set to take place ‘over the coming years’ and driven by ‘incremental capacity expansion’ encompassing hotels, casinos, retail and entertainment, as well as the increased infrastructure offerings and transportation ‘in and around Macau, with increasing visitation and greater penetration of China’. This is according to analysts at Bernstein in a report entitled ‘Macau Gaming: The Ascent of the Masses’.
Although noting that the shift is taking place, the group’s long-term forecast for the VIP market is of ‘modest growth’ with a compound average growth rate (CAGR) of ‘more or less 4 per cent’, between 2016 and 2020 ‘especially facing headwinds from regulatory changes in Macau and continued scrutiny in China’.
The junkets’ contribution to gaming revenues could be boosted by the ‘continued softening of the anti-corruption campaign’ in China, but ‘there is no guarantee that the campaign will continue to soften, but could even intensify again.’
However, immediate risks to the VIP contribution for this and next year from the China-side include ‘China government crackdowns on underground banking (dealing in forex transfers), scrutiny over invoicing of imports/exports, and limitations on corporate outbound transfers, and other constraints or scrutiny over outbound money flows’.
This, coupled with ‘any major changes to the way UnionPay is used in Macau,’ would affect the ‘Macau gross gaming revenue at the higher-end Premium Mass segment and to some VIP businesses’. In addition, given that ‘ATM and pawnshop utilization remain important avenues of funding gaming budgets’ – with analysts noting that ‘46 per cent of respondents used ATM withdrawals to fund a portion of their gaming budgets and nearly 20 per cent of respondents used pawnshops as a funding source’ – any ‘significant limitations on the pawnshop system in Macau would have a negative impact on gross gaming revenue, especially at mid-tier and higher-end Premium Mass and VIP’. The smoking ban and the continued tightening of anti-money laundering measures will also ‘create headwinds on the VIP’ the analysts note.

Growing mass
Mass gross gaming revenue is expected to have a CAGR of ‘more or less 11 per cent’ for the 2016-2020 period ‘driven by increasing overnight visitation and increasing average visitor spend’. CAGR for hotel rooms is expected to hit 6 per cent during the same period, ‘which can support an overnight visitation CAGR of 10 per cent, with hotel occupancy increasing to more or less 90 per cent,’ note the analysts, pointing out that a reason for the occupancy drop ‘was the reduction in the number of hotel rooms being taken by junkets’.
Improving the penetration of the Chinese market is needed to increase the ‘slightly above 3 per cent’ level of unique visitor penetration of the ‘addressable market in China’ notes the group, while pointing out that ‘Hengqin is a long-term driver in Macau’s growth’ and expecting the Lotus Bridge will ‘carry a much larger proportion of Chinese visitor arrivals in the future’. New capacity in hotel rooms and non-gaming offerings will help ‘to bring visitation to the area’.
‘Critical’ in this happening, is for operators to increase non-gaming offerings ‘as a draw to have customers visit, stay, spend money, and, most importantly, partake in gaming in the casinos’. The group predicts that non-gaming revenue will grow at a CAGR of ‘over 11 per cent’ in the 2016-2020 period ‘and represent over 10 per cent of the revenue contribution by 2020’.