Macao’s Mass Market Growth Story Remains Promising

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VIP revenue driving short-term growth

The recent growth in Macao casino revenue has been driven by the VIP segment. In the first quarter of 2017, VIP gross gaming revenue grew 16.8% YoY (year-over-year) to 35.6 billion Macao patacas.

The VIP segment is also showing good signs. The repayment cycle has been maintained at a healthy 20 days, and the balance sheet is skewed towards customer deposits rather than casino credit–heavy balance sheets.

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Mass market grows as well

In the first quarter of 2017, mass market gross gaming revenue grew 8.5% YoY to 27.9 billion patacas. Excluding slots, mass market revenue grew 7.9% YoY. The six big players—Las Vegas Sands (LVS), Wynn Resorts (WYNN), MGM Resorts (MGM), Melco Resorts & Entertainment (MLCO), SJM Holdings, and Galaxy Entertainment—have built new resorts to attract the mass market, and stand to gain from this growth.

Expectations

Analysts continue to expect the VIP segment to drive June revenue. Channel checks by some research houses have revealed that month-over-month, mass market volumes have fallen in June, while VIP volumes have risen. The VIP luck factor continues to be in the normal range of 3%. However, as China maintains its anti-corruption campaign, the obvious threat of tightened regulations looms large, casting doubt over the sustainability of this growth.

Mass market is expected to drive long-term revenue growth in the region. In the first quarter of 2017, the mass market contributed to 44% of the region’s revenue, and the VIP segment contributed the remaining 56%. Investors can gain exposure to casino stocks by investing in the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (PEJ), which invests 8.3% of its portfolio in casinos.

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