VIP sector to fuel Macau gambling rebound: Morgan Stanley

VIP sector to fuel Macau gambling rebound: Morgan Stanley

The VIP sector will be Macau’s silver lining after Typhoon Hato’s onslaught.

Economists at Morgan Stanley Research are predicting a sharp rebound in Macau’s gross gaming revenue this week thanks to the VIP sector’s firepower.

VIP sector to fuel Macau gambling rebound: Morgan StanleyTyphoon Hato pummeled its way to mainland China last week, causing a massive disruption in Macau’s lucrative casino industry. Hato’s fury sent tourists and gamblers scurrying away from the former Portuguese enclave.

With mass players expected to give Macau a wide berth for the time being, analysts Praveen Choudhary and Alex Poon suggested that Macau will temporarily rely on the VIP sector to help China’s special administrative region get back on its feet.

“We think Macau GGR will rebound sharply this week and in September, as the temporary shutdown of casinos or facilities this past week will not have any permanent impact,” the Morgan Stanley analysts said in a note issued on Tuesday. “We expect VIP to recover faster than mass. This, along with additional operating expenses or maintenance, is likely to mean lower earnings before interest, taxation, depreciation and amortization (EBITDA) margins in the third quarter of 2017.”

They also revised their earlier estimate of 24 percent growth for Macau GGR in August to 18 percent as a result of the most destructive typhoon to hit Macau since 1999.

Morgan Stanley isn’t the only institution predicting a growth rate slowdown in August. Investment firm Union Gaming believe that Macau’s previously exceptional August growth rate will take a significant hit of “at least a couple hundred” basis points.

Telsey Advisory Group LLC analyst David Katz, on the other hand, noted the resilience of the Macau VIP sector after the storm.

“Our sources estimate that the week’s results were impacted by 15 percent to 20 percent and the full month’s results were impacted by approximately 5 percent from the prior-week’s estimates, resulting in GGR growth for August of 19 percent to 24 percent [year-on-year],” the analyst said.