GAMING | Analysts forecast VIP segment rebound by Q3 next year

Grant Govertsen, panel moderator Emanuel Graça and Philip Tulk

Analysts are forecasting a rebound of Macau’s VIP segment towards the third quarter of next year. Philip Tulk, director of equities research, at Standard Chartered, said that the VIP market is likely to “be down double digits in the coming months”.  However, he suggested that growth should return by the third quarter of next year.
Providing a financial outlook and discussing projected and real gaming industry growth, Philip Tulk and Union Gaming Research analyst, Grant Govertsen, agreed that Macau will see positive growth revenue in the second half of next year.
Speaking at the Macao Gaming Summit yesterday, Philip Tulk acknowledged that forecasting gaming revenue in Macau is “challenging” due to two main factors. “One of them is the junket system and the lack of transparency in terms of their revenue. The second is the extremely fast rise in mass tables over the past ten years.”
He had estimated last year that gaming revenue would grow by 14 percent by now. But Macau’s casino revenue declined for a fifth consecutive month and October saw the worst monthly revenue performance on record. Total casino revenue fell by 23.2 percent year-on-year last month.
Mr Tulk recalled that the slowdown in Macau’s gaming revenue does not appear to be linked to visitation, but is rather about spending. A high number of tourists continue to visit Macau, but are most likely spending less. Tulk also thinks there is a huge challenge moving forward, while “junkets try to recapture the confidence of investors.”
Grant Govertsen believes that a full smoking ban implemented in mass floors and the Hong Kong protest might help explain Macau’s casino revenue drop. “The smoking ban was stricter than some casinos initially anticipated. And outside of Macau, you have the protest in Hong Kong, and our view is that the protest had a significant impact on Macau’s gaming market,” he said, adding that Macau was “collateral damage.”
He suggested that Hong Kong’s occupy movement has even influenced VIP premium level in Macau, as some customers might have avoided this region while the protest takes place due to “political sensitivity.” “I think Steve Wynn said it best in a conference call: it was a perfect storm of issues affecting Macau,” he added.
Mr Govertsen does not believe there’s a structural problem with demand in Macau. “I think once some of these issues resolve themselves, we should see GGR begin to bounce again.”
Although acknowledging that positive growth revenue will most likely be restored by the second half of next year, Mr Tulk said he’s mostly concerned about the VIP segment, and a possible lack of trust from those investing in junket rooms. “Junkets rely on funding from various sources, and a lot of that funding comes from individuals who might be playing in those junket rooms. Some of these individuals have lost confidence in the system,” he said, adding that there have been accounts of money disappearing from junket rooms.
“What we need is confidence in the business model,” he said.
Analyst Grant Govertsen thinks the VIP recovery might take longer than mass recovery. “We might see the mass market getting back to a positive territorial sooner” to coincide with Galaxy Macau’s phase three opening. “We will probably see more liquidity injected in the system,” he added.
Mr Govertsen believes that the next wave of Cotai resorts will not experience significant delays.
Professor Glenn McCartney, from the University of Macau’s Faculty of Business Administration, gave a talk on how to appeal to both the mass-market customers and lucrative Chinese gamblers. Understanding how the junket system works in China, he said, is key.
“China has four times the population of the USA – so we need to think about the singularity of the Chinese gamblers,” he reiterated.
He considered the locations of wealthy Chinese people, including Beijing, Guangdong, Shanghai, Fujian or Shandong.  Mr McCartney stressed that Macau needs to think of strategies to attract them here and convince them to stay longer. Restaurants as well as events, tournaments, royalty cards, gifts and event marketing are tools often used by casino resorts to VIPs draw attention.
“Junkets have also diversified their offerings over the past ten years,” he acknowledged.
Analyst Philip Tulk also agreed that the non-gaming sector has been an aspiration for the Macau government and its relevance might become greater when current concessions are discussed in 2015 and 2016.
The Macao Gaming Summit program runs until today, as part of the Macao Gaming Show (MGS) taking place at The Venetian Macao.

Ambrose So welcomes gov’t ‘cautious’ budget

The CEO of SJM, Ambrose So, has welcomed Macau’s ‘cautious’ budget for next year, as he believes the government should exercise prudence when drafting it. “They are the government, so they need to be cautious, while entrepreneurs need to be more aggressive, so we cannot have a very aggressive budget,” he said.
Acknowledging that Macau’s economy does not have a specific stimulus now, he believes that “in the next half of next year, the economy will rebound [sic].” He also added that “China will come very close to finishing the restructuring of its economic structure and it will start growing on a more solid basis.”
SJM’s CEO is convinced that the casino revenue decline will not harm Macau’s economy. “We still have a surplus. I think we have a healthy budget, and there’s no reason for the Macau people [to think] that we will run into some economic trouble,” he acknowledged.
Asked whether this will be a good opportunity for Macau to further diversify its economy, Mr So said Macau needs “space, policy and infrastructure in order for the economy to be diversified.” “I’ve recently seen small and medium-sized enterprises, especially those which are more innovative and [related to the] local culture. I hope this [trend] remains and helps with the diversification of our economy,” he said.

South Korea ‘could be a significant market’

Gaming analysts are confident that Macau’s decrease in casino revenue is not linked to other emerging markets that have invested in the gambling sector. However, they acknowledged the potential of Japan as the next big thing.  Japan’s casino bill was delayed again last month, halting progress. “It is a very conservative country and it is difficult to build consensus,” said Union Gaming Research analyst, Grant Govertsen.
Philip Tulk, director, equities research, at Standard Chartered, said that South Korea could also be a significant market if there is more government support. “It’s a great market geographically for Northeast Chinese,” he stated. Mr Govertsen expressed his enthusiasm to see whether Korea will move forward and pass a gaming bill or if it will wait for Japan to liberalize gaming. “My gut tells me it’s the latter,” he said.