Monday, August 08, 2022

VIP to lead recovery, but no reprieve in the near term

VIP gamers are expected to lead the recovery in Asia, but there is still no clarity as to when the markets will improve, with estimates for revenue continuing to be revised downwards and forecasts for the potential turning point pushed further down the road.

Early optimism for a swift snap back is fading as the virus rages across Europe and North America and Asia suffers with a new wave of contagions, largely imported from elsewhere.
Macau’s Gaming Inspection and Control Board (DICJ), this week reported that gross gambling revenue for March had plunged 80 percent to MOP5.3 billion ($664 million) The decline for the first quarter as a whole was 60 percent.

The casinos in the world’s biggest gambling hub are open, with social distancing restrictions in place, however the territory has all but closed its doors to the outside world, implementing even tighter controls in late March to stop the spread of imported cases. With 90 percent of the customer base coming from overseas, visitation has again slowed to a trickle and analysts are predicting a slump of at least 90 percent for the month.

Morgan Stanley cut its forecast for 2020 GGR for Macau this week to a drop of 35 percent and said it doesn’t see a tipping point until late October. Bernstein Research sees a fall of 27 percent for the year and warned further downgrades may be necessary.

Ben Lee, managing partner of iGamiX Consulting and Management said he isn't expecting meaningful signs of recovery in Macau until mid-2021.

“Global tourism (with gaming as part of that), with a huge chunk of that attributable to the Chinese, that we know of no longer exists,” he says. “It will be months, possibly years, for the Chinese economy and psyche to recover to the 2018/2019 levels.”

He argues that Chinese customers will be focusing on building back their businesses and savings and discretionary spending will be low on the list of priorities.

“This means re-writing a lot of the feasibility reports that have been predicated on the Chinese outbound market. It also means lowered domestic gaming for other jurisdictions as the mass struggle to recoup from the massive job losses currently being experienced,” he said, adding that based on past history it will be the VIP segment to recover first.

The World Bank has warned that the coronavirus may bring China’s economy virtually to a standstill this year, potentially driving 11 million people into poverty. It would be the worst economic performance in the world’s second-largest economy in 44 years.

Across the rest of Asia, only Singapore has open casinos and they are also operating under measures that severely limit visitation. There is no current timetable for reopening and no guarantee of visitation when they do.

“Here is the lesson: any casino market that is primarily dependent on visitation from other countries or zones that require patrons to pass through Immigration will not begin to recover until cross-border traffic fully re-opens,” says Andrew Klebanow, principal at Klebanow Consulting. “Korea is particularly vulnerable to this. Korea’s foreigner-only casinos are in for a very long recovery period since they do not have a local market to support them, and that market requires foreigners to get on planes in order to avail themselves of that country’s casino-resorts.”

“Conversely, those markets that allow residents to gamble will enjoy a quicker recovery. The Philippines’ casinos, particularly those operated by PAGCOR and that serve locals should see a fairly rapid recovery. Even those properties in Entertainment City will be able to enjoy a reasonable amount of business volume once they are allowed to re-open. Their business though, will be primarily Filipino.”

Cambodia’s biggest casino operator is optimistic for a fairly swift recovery. It’s Q1 results saw a 15 percent gain in revenue despite the crisis, as Nagaworld didn’t shut until April 1st.
“If the Cambodian government is able to contain the spread of Covid-19, the company is expected to continue its trajectory of growth in the short term, especially now the Covid-19 spread is quite well contained in China,” the company said. “Nonetheless, the company believes the long term prospects and outlook shall remain stable.”

Klebanow argues that the property also enjoys support from a sizable expatriate community of Chinese and Malays who are likely to resume gambling once the lockdown is lifted. Similarly, casinos in border towns with Vietnam and Thailand may also see a rapid recovery once normality is restored.

Even when the casinos do reopen they are likely to need to implement social distancing requirements, which will reduce gaming capacity, impeding the rate of recovery.

“I think for all casinos there is going to a fairly slow growth curve,” Klebanow said. “Until capacity is restored, it’s unlikely that business volume will return to pre-pandemic levels.”
Ultimately, the pace at which various Asian casino markets recover is dependent on how quickly their governments can eliminate the threat of this virus.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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