Analysts say it’s likely the new year will see continued weakness in VIP play in Macau, at least in the early going. But some observers say if the Chinese economy rebounds and the trade war cools, fresh energy could return to the VIP segment in the latter part of the year.
Very high end players, principally wealthy mainland Chinese who have been the catalyst behind the territory’s two-decade gambling boom, will shrink for a third straight year as a percentage of the market’s total win. Through November, total gaming revenues were down around 3 percent compared to the first 11 months of 2018, the main culprit being double-digit declines in VIP play.
December brought no improvement thanks to events centered around the inauguration of new Chief Executive Ho Iat Seng and a state visit by President Xi Jinping to celebrate the 20th anniversary of the territory’s return to China. Tight visa controls were imposed prior to Xi’s arrival, which limited visitation from the mainland and further dampened play. As a result, it was the worst month of the year for revenues against a tough comp with December 2018’s 16.6 percent increase. Win was down 13.7 percent year on year to MOP22.8 billion (US$2.84 billion).
Tokyo-based brokerage Nomura expects the VIP slide to continue into 2020, falling to 42 percent of total revenue. In its heyday it generated upwards of 70 percent.
The causes are many, and central government policy has played a significant role. It could be argued that VIP never fully recovered from a Communist Party crackdown on corruption and lavish spending that gutted revenues from the sector around the middle of the decade; while more recent efforts to step up enforcement of the country’s strict currency controls and dismantle a huge market in illegal online and proxy betting may be combining, as some believe, to drive many high rollers and the junkets that finance them to casinos elsewhere in Asia.
Slowing economic growth on the mainland and the trade war with the United States have played a role as well, as has weakness in the yuan against the U.S. dollar, which supplies the peg for the Hong Kong dollar, the currency in which gambling in Macau is transacted. It appears also that the political unrest in Hong Kong has been a larger deterrent to visitation than analysts at first believed.
The upside to all this is the growing importance of the mass market and the so-called premium mass. Operators have been retooling for some years in anticipation, investing heavily to build resort-scale casinos rich in non-gambling attractions in the style of the Las Vegas Strip.
Looking forward, “We believe the persistent headwinds are easing and could potentially pivot to become tailwinds into 2020,” a quartet of Jefferies gaming analysts wrote in a recent note to investors. They point to a pending tariff agreement with the U.S., the fact that the yuan is regaining strength and central government policies designed to ease credit as positive signs.
“Added to this, we believe the current Hong Kong turmoil would also be positive for Macau should the situation improve meaningfully, given current visitation via Hong Kong is well below normal,” they said.
It should help, too, that year-on-year comps will become more favorable in the second half.
Analysts with Macquarie Securities say they’d like to see mass-market revenue grow by around 15 percent in 2020 to dispel notions that the sector may itself be highly cyclical.
But, they add, whether the market currently has enough hotel rooms to support that is another matter.
“This could be difficult in 2020 alongside limited net new hotel supply, but we believe openings in late 2020 and early 2021 could be the catalyst,” they wrote in a recent client report.
On the plus side, the opening of a new border checkpoint between Macau and neighboring Hengqin island is expected to boost crossings there from the mainland from 25,300 currently to 220,000.
Macau International Airport also is performing well, hitting a record 8.7 million arrivals and departures through November, a 16 percent increase year on year. Traffic could reach 9.5 million to 9.6 million for all of 2019, which would be an increase of more than 1 million over 2018.
Through the third quarter, the facility connected to 58 destinations via 30 carriers.
In related news, a new law in Macau bans several categories of casino employees, croupiers among them, from entering gaming floors when off-duty.
The new measure, which took effect January 1, is designed to reduce problem gambling among a segment of the population that is considered especially vulnerable. It applies to slot workers as well as table game staff and includes cashiers, food service workers, cleaners, housekeepers, security and surveillance and employees in public relations. Junket employees who work in casinos also are banned. The restriction applies also to the floors of the workers’ employers, and violations are punishable with fines up to MOP10,000 (US$1,245).
In line with a similar prohibition applicable to government workers, it carries an exemption for the first three days of the Lunar New Year and for situations where a worker has a reason for being in a casino outside of working hours that is considered legitimate under the law. This would include training, academic research or association-related activities or to complete special work requested by the employer.
In some cases, the worker will need to submit a form explaining the reasons, location and duration of such activity to the Gaming Inspection and Coordination Bureau, the government’s casino regulatory agency, and could require prior approval from the bureau in some instances.
