Jefferies initiates coverage on Macau gaming sector, is optimistic

Thursday 18th of April 2019

Tax cuts in China, credit easing and China’s migrant salary ‘hump’ will be the next drivers of Macau gaming growth, say analysts from Jefferies on Thursday.

The predictions came along with an announcement that it has initiated coverage of the Macau gaming sector, joining the ranks of Union Gaming, Bernstein, Deutsche Bank, Morningstar, and other analysts groups.

During the Jefferies' Macau tour in March, the brokerage said it is slightly more optimistic about Macau GGR growth, with mass growth around double digits, outpacing negative VIP growth.

“Mass market will continue to outpace VIP with the Chinese outbound tourism market still untapped and still under-penetrated - only 11.6 percent of the population traveled abroad last year. Look for the next wave of potential Chinese travelers as another 240 million workers should hit the income distribution salary hump within the next 7 years, which previously took 20 years.”

“We estimate China's overseas tourism target market as individuals surpassing the RMB3,500/month personal income threshold (currently around 238 million people). This will be a key driver for future visitations,” said the analysts.

The brokerage is also optimistic on economic policies in China that will boost the VIP gaming market in the second half of the year, such as recent personal tax cuts to stimulate the Chinese economy, credit easing, SOE-funded value added tax (VAT) cuts, and a further cut in Reserve Required Ratio (RRR).

Looking at 2019, Jeffries said it is forecasting a 1.1 percent increase in gross gaming revenue - led by a 6.5 percent increase in mass, and a 5.6 percent GGR increase in 2020, led by a 3.7 and 7.8 percent increase in VIP and mass respectively.