Gaming | Fitch Ratings predicts sharp VIP deceleration

Credit rating agency Fitch Ratings is predicting 13 percent annual growth for Macau’s gross gaming revenues this year, driven by 16 percent growth in the mass-market segment and 10 percent in the VIP segment. This would represent a significant deceleration in VIP growth, the component said to be the thrust behind last year’s gaming improvement.

The firm predicts that the mass-
market component will grow in importance as new properties gear up, including MGM Cotai and Morpheus at City of Dreams. It also said that in the longer term, mass-market growth will be supported by an upward trend in the average length of stay by Macau visitors, additional hotel capacity, and improvements to infrastructure in southern China.

The infrastructure developments include the soon-to-open Hong-Kong-Zhuhai-Macau Bridge, light rail connecting the various properties on the Cotai Strip and an intercity rail link that, when complete, will link Guangzhou to Macau.

The prediction follows a strong January posting that saw gross gaming revenues grow more than 36 percent to MOP26.26 billion, according to the Macau Gaming Inspection and Coordination Bureau.

According to Fitch Ratings, its “more conservative full-year forecast takes into account more challenging year-over-year comparisons later in the year and the more volatile nature of the VIP segment.”

“While we are more cautious [about] the VIP segment, which declined nearly 60 percent from peak to trough in the recent downturn, we feel it is now more sustainable. […] Still, caution is warranted given the segment’s reliance on credit and some credit tightening measures taking place on the mainland,” the firm noted in its report.

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. 

A deceleration in VIP growth to 10 percent would likely hit harder those casino operators more dependant on high-stakes players. In particular, scandal- embroiled Wynn Macau would likely fare worse than its competitors.

But gaming analysts remain divided in their predictions for 2018, with some taking a contrary view to Fitch Ratings.

Brokerage firm Sanford C Bernstein expects a slowdown which will be increasingly noticeable as the year progresses. Its analysts predict full-year VIP growth to decline to around 8 percent, while mass-market revenue may record 11 percent growth as its contribution to gross gaming revenue rises.

Another report released by Morgan Stanley suggests that the VIP segment might perform better than most analysts expect. 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.

Fitch Ratings also weighed in on the gaming concession expirations, suggesting that the incumbent operators are likely to be awarded new concessions between 2020 and 2022.

“We do not believe the gaming concession expirations in 2020 for MGM Resorts and SJM Holdings and in 2022 for the other four Macau operators are a major risk,” the firm wrote.

“We think the government will take a pragmatic approach to renewing (or re-bidding in technical terms) the concessions, emphasizing future non-gaming investment and promotion of local employees by the concessionaires.”