Is Macau news as bad as it seems? Analysts assess latest headlines

Tuesday 29th of September 2015

Analysts are seeking to assess the implications of the latest run of bad news out of Macau, with Morgan Stanley remaining cautious, but concluding that recent events may not be as bad as initially feared.

Sentiment has been shaken over the past few weeks by another scandal involving a junket operator, more restrictions on China UnionPay, big losses and a bearish outlook from Neptune Group and the possibility of more junket regulation.

UnionPay plans to limit withdrawals by Chinese debit card users to up to RMB100,000 ($15,700) per card annually overseas from January 1, 2016.

There is no change to the daily limit of RMB10,000 in cash withdrawals, unlimited debit card usage through swiping and up to RMB1 million credit limit per card.

Morgan Stanley says this is negative for regular premium mass players who withdraw cash from ATM machines to buy chips from cage or tables and were frequent visitors.

“For others, it is not as bad. Most customers have several cards and are also using pawnshops/credit cards to access cash for gambling with no additional restrictions. On a relative basis, this impacts Macau more than other global tourist destinations where Chinese visitors can swipe the card to buy merchandise.”

Bernstein Research analysts agreed, saying it will add incremental headwinds to the mass market in Macau, and in particular premium mass, but may not be that severe.

“As many customers have multiple UnionPay cards, the net result of the new limits on gameplay may be limited; the risk is that players may have additional concerns about utilizing UnionPay for cash withdrawals as it may be subject to greater government oversight,” Bernstein said in a separate note.

Meanwhile junket Neptune’s reported net loss of HK$959mn in 2HFY15 was seen as a further negative for the VIP sector. The group, which has a 10 percent market share, also closed down 22 tables at StarWorld and now operates only 59 tables - 3 percent of total VIP tables in Macau.

“We believe this is negative for VIP business in Macau, which we expect to decline by 47%/7% in 2015/16, but somewhat backward looking,” Morgan Stanley says.

For Bernstein, the group’s threats to exit the business altogether should the environment not improve are probably “indicative” of the thinking of other operators and aimed at the Macau government, which is also considering further regulation.

“Long-term, tighter government oversight can help restore the confidence and trust within the junket space. However, it would also lead to significant reduction in junket involvement in Macau's VIP business,” it said, adding it’s difficult to see any silver lining in potential regulation that actually has teeth.

“If increased regulations were implemented, the junket system would by its very nature have to evolve into something that looks very different from the junket system of today,” Bernstein said.