Macau VIPs back to the tables

    Published in: Latest Intelligence

     

    The good times may just be rolling again in Macau’s VIP rooms. Analysts say last month’s record 31.3 billion pataca ($3.9 billion) gross gaming revenue implies the VIP market grew about 20 percent, the fastest rate in a year after six sluggish months.

    “I’ve read all those negative reports on the VIP market and what the reports say and what the reality is is completely different,” said Tony Tong, director of investments at Tak Chun Finance, an affiliate of Macau junket operator Tak Chun.

    With China the key source of Macau’s VIPs, uncertainties around the leadership changeover in Beijing, a number of high-profile corruption cases and the momentum of the country’s economy have weighed on potential players.

     

    “We think that’s the reason that VIP growth was slower last year,” said Richard Huang, an analyst with CLSA Asia-Pacific Markets in Hong Kong. “We also think that will result in slower VIP growth this year.” The broker is forecasting just 5 per cent growth from 2012.

    Sands China Ltd. comparatively benefitted from the VIP slowdown against its competitors because of the company’s stronger position with mass market gamblers. Wynn Resorts, by contrast, lost ground in recent months.

    Asia Entertainment & Resources Ltd., a US-listed company with operations in several Macau VIP rooms, indicated last week that it had missed out on the March rebound. It said its rolling chip turnover, the key measure of VIP activity, declined 13 percent for the month from a year before to $1.53 billion even as Macau’s overall gaming revenue rose 25.4 percent 

    The company said the turnover declined stemmed from its own moves to tighten credit to agents who lend to VIPs “due to its conservative view on the Chinese economy”. Management indicated to analysts last week that with that view turning more optimistic, they are expanding credit lines once again. 

    That could allow AERL to catch up with other VIP groups which upgraded their expectations for China’s economy earlier and helped fuel March’s bump in activity, as Karen Tang of Deutsche Bank noted. VIP has historically been closely correlated with growth in China’s gross domestic product, according to David Bain, an analyst with Sterne Agee. The completion of China’s leadership handover has also helped ease worries.

    Some of the previous sluggishness VIP results likely stemmed from players trading down to “premium mass” as Macau’s mass market continued to grow at a 30 percent clip over the period. While some observers tie this to privacy concerns as Macau moves to demand more reporting on money movements in line with global drives against money laundering, trading down can offer other other benefits for players – and for operators.

    While VIP play allows players to benefit from lines of credit and pampering hospitality, high rollers are often obliged to gamble at casinos of the junket operator’s choice. In some cases, they are required to spend a certain amount of time at certain tables. Operators are finding that high rollers want to trade down sometimes after repeated Macau trips, trading the perks of VIP for the relative freedom of the premium mass market. Even better for the casino operator, margins in premium mass are wider since they do not have to split revenue or profit with junkets.

    Few Chinese VIPs are seen to have been lost to Singapore or other casino markets. “In Singapore, people usually have business reasons for travelling there,” said Hoffman Ma, deputy chairman of Success Universe Group Ltd., a Hong Kong-listed group with VIP interests. “They either have a lot of investments there already or they are using Singapore as a hub.”

    Some players though may have opted for gambling cruises from Hong Kong. As Ma has noted, the privacy and convenience of the overnight cruises holds appeal for certain high rollers. His company said two weeks ago that the MV Macau Success ship, of which it owns 55 percent, generated a 16 percent rise in revenue to HK$80.4 million ($10.3 million) last year as it reversed a loss recorded in 2011 to report a HK$2.9 million profit.