Gaming | Bernstein predicts VIP slowdown this year

Brokerage firm Sanford C Bernstein is predicting a deceleration in Macau’s VIP gaming growth this year on the back of a number of political and economic factors in mainland China.

A report by Bernstein analysts Vitaly Umansky, Zhen Gong and Cathy Huang warned that there is a “rising risk” to VIP gaming brought about by tighter capital controls, Xi Jinping’s ongoing anti-corruption campaign and increased local regulation of Macau’s junket promoters.

“VIP strength was largely driven by stronger than expected macro environment, robust liquidity, and strong consumer/business confidence environment coupled with a robust junket capital base with increasing credit issuance to players,” the Bernstein analysts noted.

“Although it is likely to continue to show strength over the next few months (or even the next two quarters in 2018), the VIP model is likely to face structural headwinds […] from instituted cooling measures on Chinese real estate, a credit tightening in China, an increasing regulatory environment in Macau and continued Chinese government focus on capital outflows in China,” their report continued.

The analysts also warned that, “to some extent”, the premium mass segment might also be affected by the politico-economic situation in mainland China.

The VIP segment grew approximately 26 percent in 2017, while total gross gaming revenue increased by 19.1 percent year-on-year to MOP265 billion, the highest posting since 2014. This implies that the VIP segment remained the driving force behind last year’s gaming recovery.

Though December 2017 registered a slight weakening in the segment, Bernstein expects VIP growth to hold steady in the first few months of 2018 and for the slowdown to become more noticeable as the year progresses.

All in all, the analysts predict full-year VIP growth to slow to around 8 percent, while mass-market revenue may record 11 percent growth as its contribution to gross gaming revenue is on the rise.

“While growth will decelerate from 2017, 2018 will still show respectable growth (driven more by mass),” the report said.

Meanwhile, a contrary report was released by Morgan Stanley indicating that the VIP segment might perform stronger than most analysts are anticipating. The firm said that it expects VIP gaming to grow 20 percent in 2018 and mass-
market growth to trail with a 12 percent rise. DB