Cautious optimism for Macau’s mass market story; Union Gaming

Monday 18th of January 2016

Macau's Q4 gross gaming revenue rose sequentially for the first time since the first quarter of 2014, according to figures released by the gaming regulator, leading to cautious optimism about prospects for the mass market sector.

Overall, GGR was MOP 54.8 billion (US$6.8 billion), a 27 percent year-on-year decline, but recorded one percent sequential growth. Combined mass market and slots GGR of MOP 25.2 billion has been reported as flat, however, Union Gaming argues that the performance was better and likely grew 3 percent on a sequential basis after adjusting for table games reclassifications.

There has been an ongoing reclassification scheme first instituted in Y14Q4 by certain operators who are running premium mass games as VIP in order to allow smoking, effectively understating the decline in VIP and overstating the decline of mass in Macau.

“This is cause for cautious optimism specifically as it relates to the mass market story (we continue to believe that VIP will decline in 2016) and supports our current forecast of 6% to 7% mass market growth this year,” according to the report.

“When we adjust 4Q15 DICJ-reported GGR for these reclassifications, we estimate that mass and slots likely accounted for around 53% of GGR in 4Q15, which marked the second consecutive quarter by our estimation that VIP has not accounted for a majority of gaming revenue in Macau. We would look for this trend to continue for the foreseeable future.” the report adds.

On the other hand, Nomura in a recent report cautions investors that there is still a risk of disappointment concerning mass market growth.

“While our mass gaming growth forecast of 9 percent in 2016 full year is already close to the lower-end of the consensus forecast range, we believe there could still be risk of disappointment, with our concern stemming from three deteriorating macro trends: declining lottery sales in China from 2015; a depreciating renminbi (down 10 percent in the past two years); and declining Chinese visitation (down 4 percent year to date to November 2015, with more severe declines from Shanghai and Beijing at -9 percent and -13 percent,”