Overseas (ex-Macau) VIP gaming revenue grew 27 percent year-on-year in 16Q2 after two years of negative growth, said Morgan Stanley in a note on Tuesday.
“Part of that was driven by new casinos in Saipan /Vladivostok and part from junkets moving to low tax jurisdictions like the Philippines,” said the brokerage, referring to Imperial Pacific’s Best Sunshine Live operations in Saipan and Summit Ascent Holdings’ Tigre De Cristal in Vladivostok, Russia.
Macau VIP revenue on the other hand fell 21 percent year-on-year in the second quarter, with the brokerage adding that it saw “no recovery in sight.”
“No new VIP tables have been allocated to newer casinos since 2015 and smoking ban could be implemented in future,” analysts explained.
In a related report published by Morgan Stanley earlier this year, titled - “Global Gaming: VIP Gambling - Overseas Growth at the Expense of Macau” - the brokerage highlighted that 2016 will remain challenging for Macau’s operators, forecasting that growth outside Macau will outpace Macau.
The brokerage adds in the recent note that slowing China macro-economic growth, evident in China M2 and real estate sales growth, signals further risk to VIP demand.
Morgan Stanley said it favored Australia-listed Star Entertainment stock, which continues to benefit the most from VIP exposure over rival Crown Resorts.
According to the note, The Star occupies a monopoly position in Sydney, which remains as Australia’s premier VIP market.
“The Star’s ability to manage new VIP market entrants still remains the biggest stock specific risk and longer term value driver, though this is not expected until 2021,” said the brokerage.
Bloomberry is also favored by the brokerage, given the expectation of strong growth in the VIP sector in the Philippines.
“We are not concerned about cannibalization from Okada Manila due to stronger Entertainment City cluster. Also, we think 1) the sale of its Jeju operations removed an overhang, 2) margin will expand on better cost control and lower provisions, and 3) Bloomberry will see stronger growth in mass.”
Other stocks it prefers are those of Paradise City, Korea’s first integrated resort which is scheduled to open in April 2017. “First mover advantage could drive new mass and expand existing VIP markets,” said the brokerage.
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