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VIP growth seen resuming in 2016 if anti-corruption drive abates

Analysts at Sanford Bernstein predict that once the impact from China’s anti-corruption drive and economic effects have been absorbed by Macau’s gaming industry, the VIP segment will resume growth, but at a much more moderate pace.

In a two-part report on Macau’s VIP business, the analysts said the city’s gaming industry is undergoing a shift from a VIP to a mass-focused market which will continue amid the mainland’s anti-graft campaign, improving infrastructure and transportation links into Macau and an increased supply of hotel rooms and gaming positions targeting mass players.

Similarly, the loosening of currency controls within China will allow Chinese visitors to more easily transfer yuan from China to Hong Kong dollars in Macau, “leading to less reliance on junkets by high rollers and driving the higher-rolling premium mass business,” the report says.

The report goes on to say that the VIP slide will continue throughout 2015 and begin to show signs of stabilization and potential improvement beginning in early 2016.

VIP GGR in 15H1 is expected to decline sharply by 44 percent, followed by a 23 percent decline in 15H2.

“Our longer term view is that VIP should be able to experience a 2015E-2020E CAGR of 6% once the anti-corruption campaign becomes more institutionalized and less ad-hoc.”

The outlook is highly dependent on a moderation of anti-corruption sentiment in China and that should the sentiment continue beyond late 2015, or even intensify, “we think the VIP segment could be further negatively impacted and a VIP stabilization and potential recovery would take longer to materialize.”

“Further, we believe that the VIP segment has become a demand driven market, rather than a supply driven market as it was during the high growth years leading into 2014. As such, VIP will be more highly sensitive to China government policy and macroeconomic factors affecting wealthy individuals than it has been historically.”

The report adds that an increasingly competitive VIP market in Macau has over the past several years led to some consolidation in the junket industry.

At the beginning of 2015, there were 183 licensed junket operators in Macau, though 80 percent of the junket VIP business in Macau is dominated by half a dozen large organized junket promoters, it points out.



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