Gaming operators` mass market share expansion sustaining positive results in Macau

Macau’s gross gaming revenues have recorded a slight drop of 1.8 per cent to MOP246.7 billion (US$30.5 billion) in the first 10 months of this year.

Meanwhile, between January and September VIP baccarat results – which amount for almost the entire VIP gaming sector – went down 17 per cent year-on-year to MOP102.9 billion, while all other casino table and machine games have risen by almost the same percentage to MOP117.3 billion, Gaming Inspection and Co-ordination Bureau (DICJ) data indicated.

Previously gaming analysts have pointed to a low RMB, the US-China trade war and continued pressure on VIP gamblers and junkets as factors that have contributed to the disappointing gross gaming revenues in Macau, with the same factors expected to continue until the end of the year.

However, despite recording a decrease in VIP revenues, the gaming operators who have so far divulged financial results for the third quarter of this year – Sands China, SJM, Melco Resorts and MGM China – have shown increases in their mass-market revenues and a rise in adjusted earnings before interest, tax, depreciation and amortization (EBITDA) during the first nine months of the year.

According to the University of Macau Associate Professor in Business Economics, Ricardo Siu, told MNA that the efforts of local gaming operators in pushing the growth of the mass market helped explain how despite an overall fall in gross gaming revenue, positive results in profits and EBITDA could be achieved.

“To the casino operators, EBITA of mass market operation is higher than that of VIP business, because of high commission paid to gaming agents and/or sharing of GGR with the gambling room operators,” the gaming researcher told MNA.

The UM Professor also considered that although gaming results in the first three quarters of 2019 fell slightly, the share of mass-market in the total results has increased noticeably and gradually from 45.2 per cent in 2018 to 51.1 per cent in the first quarter of this year, to 52.8 per cent in the second quarter and to 56.1 per cent in the third quarter.

“In the foreseeable future, an increase in tourists may maintain the operators’ results if the growth in the mass market could be much larger than the slow down in VIP.  Otherwise, the positive results in profit may be narrowed down,” Siu added.

For Chelsey Tam, an Equity Analyst at Morningstar Asia, the “resilience” of gaming operators adjusted EBITDA margins has been helped by the higher margins offered by a still-growing mass market.

“The premium mass market is under pressure, but it is a lower margin business. The mid and grind mass businesses have a higher margin and I think they are quite resilient, and as you know, VIP segment has the lowest margin of all,” the analyst told MNA.

The Morningstar analyst also noted that higher EBITDA could also be a result of a higher win/hold rate and market share gain by gaming concessionaires.