The next wave of megaresort development in Cotai could be the catalyst for a fresh surge of VIP revenue growth in Macau, according to a new report from investment bank Morgan Stanley.
High rollers are the biggest contributors to gaming revenues in Macau, accounting for 60 percent of the territory’s world-leading US$45 billion-plus of gaming revenue, but growth in the sector has slumped in recent months due in part to skittishness over the health of China’s economy and in part because operators are responding to space constraints and the government’s 3 percent cap on annual table growth by shifting more tables from VIP rooms to higher-margin and more profitable cash tables catering to the mass market.
Since the beginning of the year, VIP revenues have been slowing down and in May they decreased 1.4 percent year-on-year, the first drop since May 2013. The shrinking gains coming from high rollers have been one of the major causes of the softness of gaming revenues this year in Macau.
Morgan Stanley expects VIP revenues to increase only 4 percent this year and 5 percent in 2015.
“While we agree that the current slowdown is primarily driven by cyclical macro weakness, slowing retail and property sales, we are also seeing signs of saturation in the market based on our analysis of VIP revenue/China GDP ratio,” the bank said.
But it says the next phase of Cotai could revive the fortunes of VIP and gives the example of 2010-2012, a period when additional VIP capacity in Macau with new openings led to a revenue increase in the sector at an average rate of 20 percent.
“Over the next few years, we expect at least 35 percent of all additional tables to be in the VIP rooms. This should help drive growth higher,” the bank wrote.
The next phase of the Cotai Strip—featuring a half-dozen multibillion-dollar resorts—will add around 4,000 new gaming tables to the market, according to data from analysts.
Besides the additional capacity the bank also points out that the smoking ban taking effect October 6 on the public casino floors could also benefit the VIP segment by capturing more high-stakes cash players.
Another positive effect is the improvement of China’s economic situation, namely the easing of monetary policy by Beijing permitting banks to issue more credit and the increasing number of wealthy gamblers from the mainland.
