MACAU

VIP revenue growth to moderate as mass accelerates

Macau will post another year of double-digit revenue gains in 2018, though the VIP sector, which drove the recovery last year, is expected to slow, analysts say.

Gross gambling revenue surged 19.1 percent in 2017 to MOP 265.74 billion ($33.02 billion), bouncing back after three years of declines. According to Bernstein estimates, VIP revenue gained about 26 percent over the year, far outpacing that of the mass sector despite the government’s push to foster a wider leisure tourism market.

For 2018, analysts see growth in the low single digits, with the mass market returning to centre stage. In December, the market already showed signs of moderating, with GGR rising just 14.6 percent, down from a 22.6 percent gain in November and the lowest rate since January.

Gross gambling revenue in Macau is likely to rise 14 percent in 2018 before moving on to set record highs in 2019, Bloomberg reported, citing a survey of 10 analysts. The current record for Macau was $45 billion reached in 2013 before China’s anticorruption drive triggered a market collapse.

Some of the key drivers for the year are expected to be new openings and the longdelayed Hong Kong/Zhuhai/Macau bridge.

MGM China Holding’s MGM Cotai opened its doors on Jan. 29, after pushing back its opening from 2017 due in part to construction delays caused by Typhoon Hato. It was the first major debut in nearly 18 months and the second to last of the planned IRs for the Cotai Strip. The resort opened with mass tables only, but is expected to add VIP tables in the first half of the year. According to UBS Research, the company has secured 5 junket operators for the property. SJM Holdings is still to complete its Lisboa Palace resort, which is not expected to be ready until 2019.

However, it’s the road bridge that has been seen as a game changer for Macau in terms of driving visitation. No exact date has yet been set, but once open it will cut the journey from Hong Kong to about 30 minutes, half of the current time, and provide a direct link to Hong Kong’s international airport.

UBS said a survey undertaken by its UBS Evidence Lab showed that about 50 percent of respondents indicated they would travel much more frequently to Macau once the bridge was open, with a further 30 percent indicating they would travel a bit more frequently.

Gross gambling revenue in Macau is likely to rise 14 percent in 2018 before moving on to set record highs in 2019.

Infrastructure improvements will also be made at Macau International Airport (MIA) to boost passenger traffic capacity to 7.5 million movements per year, while The Transport and Public Works department has decided to start the construction of the Light Rail Transit (LRT) for the Macau Peninsula at the Border Gate.

Overall, visitation to Macau has improved.According to the Macau International Airport, passenger arrivals gained 8 percent to more than 7 million travellers last year, beating all records to date. The number of tourism arrivals during the three-day New Year holiday was up 8.5 percent.

However, analysts point out that the number of arrivals doesn’t always correlate to an increase of GGR given the continued dominance of the VIP sector.

Operators during the year will also be waiting for indications from the government over the upcoming concession renewals, with the first batch due to expire in 2020.

Security consultancy Steve Vickers warns that the issue of concessions is one of the key risks in Macau, with the government to date keeping its cards close to its chest in terms of how it plans to proceed. Some analysts have said they are not expecting any major clarification this year either.

Sands China

Sands China (1928:HK) has five properties in Macau. The new $3 billion The Parisian opened in September 2016 and is now a key driver of group results. It features a scale replica of the Eiffel Tower, nearly 13,000 hotel rooms, two million square feet of retail-mall offerings and two million square feet of MICE capacity. Sands China’s Q4 results beat analysts’ expectations, driven by strong premium mass revenue in Macau.

Total net revenues for Sands China increased 12.9 percent to US$2.10 billion compared to US$1.86 billion in the fourth quarter of 2016 and above The Street estimate for $1.94 billion. Net income increased 49.1 percent to US$519 million, while hold-normalized EBITDA came in at $758 million, representing growth of 30 percent over the prior year.

Melco Resorts & Entertainment

Melco Resorts & Entertainment (6883.HK) has three casinos and the Mocha Clubs. The company operates the City of Dreams and Studio City in Macau and the City of Dreams Manila.

Net revenue for the third quarter of 2017 was US$1.4 billion, an increase of 19 percent year-on-year. Melco said the increase in revenues was attributable to higher rolling chip revenues at City of Dreams and the commencement of rolling chip operations at Studio City in November 2016. Adjusted property EBITDA was US$400.2 million for the third quarter of 2017, representing an increase of 38 percent. Last year, the company dismantled its joint venture with Australia’s Crown Resorts and has subsequently been rebranding its properties. For example, The Crown Towers hotel at City of Dreams Macau is set to operate under a new name: “Nüwa”, starting January 18, 2018.

The company is also actively positioning itself for a license in Japan and its parent company Melco International also recently finalized a venture in Cyprus to operate casinos on the island. The accord is to develop an integrated resort in Limassol and up to four other satellite casinos.

Meanwhile, the Macau government has awarded Chairman and CEO Lawrence Ho the Medal of Merit - Tourism for his contribution to tourism in the territory.

Galaxy Entertainment Group

Galaxy Entertainment Group (27.HK) has three main properties and runs three City Club casinos inside hotels. The company’s Galaxy Macau Phase 2 and Broadway at Galaxy Macau opened on May 27, 2015, almost doubling the capacity of the resort. The operator said it continues to move forward with Cotai Phase 3. The company’s Q3 results were mostly in-line with analyst estimates, with adjusted EBITDA reaching HK$3.5 billion and revenue of HK$15.9 billion. Total gaming revenue was up 24 percent to HK$14.9 billion, with mass up 14 percent and VIP up 34 percent year-onyear. Electronic gaming revenue increased 9 percent in the quarter. The property is viewed by analysts as one of the best placed in Macau, having made considerable efforts in recent years to boost its mass market appeal. Galaxy is also now looking at overseas expansion. The company has teamed up with Monaco’s Societe des Bains de Mer to push for a license in Japan and has also said it wants to invest $500 million to build a resort on the Philippine island of Boracay.

SJM Holdings

SJM Holdings (880:HK) has 20 casinos on the Macau Peninsula. The company’s results for Q3 disappointed analysts with a 16.5 percent decrease in profit to HK$428 million. Adjusted EBITDA for the group fell 10.4 percent to HK$726 million. It however, posted a small increase in gaming revenue for the third quarter of 2017, reaching HK$10 billion, an increase of 0.6 percent. In regards to gaming performance, SJM said it saw a rise in VIP revenue in the quarter, recording an increase of 7.4 percent. Mass market gaming revenue however fell 4.6 percent in the same period.

The company has been losing market share while it completes construction of its Cotai IR, which most analysts now expect to open in 2019.

Recently, the company’s Grand Lisboa Hotel was the title sponsor of a Dota 2 eSports tournament in December. It was the first international eSports competition held in Macau, with nine teams of contestants coming from around the world.

Wynn Macau

Wynn Macau (1128:HK) opened its $4 billion Wynn Palace in Cotai on August 22 after facing construction delays. The company’s original property is on the Macau Peninsula. The Wynn Palace has 1,700 hotel rooms and 90 percent of the resort will be non-gaming.

In Q4, net profit increased more than 300 percent reaching $187.2 million. Total revenue from the Macau arm reached $1.3 billion in the quarter, compared to only $917.1 million recorded in the year before, while adjusted property EBITDA reached $376 million, beating market consensus.

According to research from Bernstein, Wynn and Melco are expected to benefit the most from the growing premium mass market in China. This class currently comprises about 63 million people and is forecast to grow at a compound average rate of 7.4 percent through 2026. Wynn has also expressed an interest in obtaining a casino license for Japan, though has not been as aggressive on the ground as some of its peers.

MGM China

MGM China (2282:HK) is operating a single casino on the peninsula. MGM China posted a 21 percent year-on-year decrease in adjusted EBITDA in 17Q3, slightly below market expectations. Net revenue decreased 5 percent to $471 million. Main floor table games revenue decreased 11 percent year-on-year, while table games revenue decreased 3 percent year-on-year. MGM has further pushed back the opening of its resort on Cotai to February due to licensing delays.

MGM Cotai will have approximately 1,500 hotel rooms and suites, meeting spaces, high end spa, retail offerings and food and beverage outlets. The project has a jewellry-box design and 85 percent of its gross floor area will be dedicated to non-gaming facilities. On February 13, in anticipation of Chinese New Year, MGM will host the official grand opening ceremony and gala dinner to be officiated by government officials. Like its main competitors MGM is also actively seeking a license to operate in Japan.

Paradise welcomes ETG standards

Paradise Entertainment has welcomed new technical standards published by the Macau market regulator for the operation of dealer operated electronic table games.

The new standards came into force from Jan 1 and provide a grace period for existing terminals to be upgraded to comply with the new rules. Any failing to comply after the grace period will be withdrawn from operations.

The Dealer Operated Technical Standards Version 1.0 set out a definition for the game as well as the minimum technical standards. All game rules need to strictly adhere to rules for approved table games in Macau, while each machine must provide information in both Chinese and English.

The game being played must at all times be clearly visible to the player, while each individual bet that has been placed must also be transparent.

China imposes new UnionPay limits

China’s State Administration of Foreign Exchange has imposed new restrictions on UnionPay cards, effective on January 1, 2018, though the impact on Macau GGR is expected to be limited.

ATM daily and annual cash withdrawal limits per card for both RMB cards and foreign currency cards will be unified to be RMB 10,000 ($1,540) per day and RMB 100,000 per year respectively. There had previously been no limit on foreign currency cards.

The annual limit on RMB cards has been RMB 100,000. There is also a new personal limit of RMB100,000 per year per individual, irrespective of how many UnionPay accounts or cards that person may have.

There had been no limits previously (i.e., an individual with multiple accounts cold withdraw RMB 100,000 per year on each account.