An estimate for Macau gross gaming revenue (GGR) from VIP gaming just took a substantial hit. According to the Japanese brokerage Nomura, the VIP GGR estimate for 2019 was slashed in half, falling from 14% to 7%. The brokerage is concerned over the “recent flattening of volume growth from junkets,” which resulted in the estimate update.
Nomura also dropped the Macau GGR forecast from 14% to 9% through the end of 2020. This was done to “reflect a more sustainable mid-single digit increase in VIP demand and low-double digit mass growth.” According to Nomura analysts Daniel Adam, Brian Dobson and Harry Curtis, the analysis was based on conversations held with executives from different Macau casinos. If there is any consolation, it is that this year’s VIP revenue forecast by the brokerage comes in at $21.20 billion, an increase of 13% year-on-year.
There has been a slight decrease in revenue during June and July, brought about in part by the FIFA World Cup playoffs taking place in Russia. Tak Chun Group, a major junket company operating in Macau, said that the soccer tournament has had a “slight impact” on its business, but the impact was in line with what has seen during previous World Cup competitions.
The analysts based their results, in part, on the current political tension between the U.S. and China and the accompanying trade war. They said, “Geopolitical uncertainty in China is high due not just to the brewing trade war, but also because of Beijing’s efforts to rein in excessive company leverage. On the downside, if last week’s imposition of a US$34-billion bilateral tariff [between China and US] increases toward US$100 billion, then we’d expect economic (and junket) activity to contract further.”
The Nomura analysts added, “…this near-term lull in VIP volume growth could improve if there is a face saving trade agreement between China and Trump, and if China pumps more liquidity into its system to prop up its GDP.” However, they pointed out that Macau casinos could expect only single-digit growth in VIP volumes through the end of 2020, supported by “high quality capacity growth” for junket demand through both the Galaxy Macau resort and Wynn Palace.
A business risk assessment published by the consulting company Steve Vickers and Associates Ltd. also mentioned concerns for Macau over the trade war. In its assessment, the firm said, “Three of Macau’s six gaming concessionaires are [majority owned by] U.S. companies: Las Vegas Sands [Corp], MGM [Resorts International], and Wynn Resorts [Ltd]; and Las Vegas Sands founder Sheldon Adelson boasts close ties to U.S. President [Donald] Trump. These companies now sit on a geopolitical fault line. Their Macau concessions can therefore be on the line.”
Nomura further updated its forecast for Macau mass segment growth for next year, lowering it to 12% from 14%. The reduction came as a result of an “overlap between the premium mass and VIP customer bases.” This year, the analysts predict an increase for mass revenue, anticipating a 16% jump to bring in $14.73 billion.