he slowing of VIP revenues is the biggest concern for Asian casino investors – ahead of issues like the smoking ban or the less positive economic outlook in China, a Morgan Stanley report says.
According to a survey conducted this month by the US-based bank, almost all Asian investors (97 percent) expect a negative impact on gaming stocks due to the slowdown of the VIP segment in the next three months. If the near-term is pessimistic, the long term doesn’t bring good news, either.
Two-thirds of Asian investors questioned by Morgan Stanley underlined that they’re expecting a decrease in stocks in the next 12 months with the VIP deceleration. Regarding the high rollers, Morgan Stanley stated that Asian investors are much more worried than their US counterparts, only 30 percent of whom expect a drop in shares through a VIP slowdown.
After peaking in 2013, VIP revenues are growing much slower this year - for some operators they are already decreasing – after casinos started shifting tables to the higher margin, higher profit mass premium market. The VIP segment is also more exposed to economic cycles, political shifts and scandals affecting junkets than the mass gaming market.
According to Business Daily calculations, VIP revenues from the Big Six in Macau - Sands, MGM, Melco Crown, Galaxy, SJM and Wynn - in the first quarter improved 14 percent from a year ago, a solid performance but miles away from the mass market, whose revenues skyrocketed 40 percent in the same period. Besides growing three times faster than the VIP segment, mass gamers are also much more profitable for operators even if VIP revenues are much bigger and still have a huge influence on performance.
Investors also told Morgan Stanley that they believe that the operators of Wynn Macau and Galaxy will suffer most on profits if VIP slowdown deepens. In this scenario, Sands China is the least vulnerable.
Even if cautious with VIPs, investors are still bullish on Macau’s overall success in the next 3 and 12 months, Morgan Stanley said. The new casino wave in Cotai is pushing up the confidence of the market. More than 80 percent of Asian and US investors are expecting a positive impact on stocks in the next year with Cotai property openings and news, devaluating issues like delays, high expectations and cannibalisation of existing resorts and casinos.
The mass market is another driver behind investors’ optimism. More than half (56 percent) said they’re waiting for gaming stocks to evaluate in the next 3 months with the mass market’s positive performance, while 75 percent are expecting the same for the next twelve months. According to the Morgan Stanley report, the impact of the new casino openings in Japan is neutral on casino stocks.