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VIP Segment Driving Macao Casinos’ Short-Term Recovery

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VIP driving short-term growth

The recent growth in Macao casinos’ revenue is being driven by the VIP[1. very important person] segment. For the first quarter of 2017, VIP gross gaming revenues rose 16.8% YoY (year-over-year) to MOP[2. Macao Pataca] 35.6 billion. For the second quarter, VIP revenue rose 34.8% YoY to MOP 35.9 billion.

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Mass market grows

For the first quarter of 2017, mass market gross gaming revenues rose 8.5% YoY to MOP 27.9 billion. For the second quarter of 2017, mass market revenue rose 5.7% YoY to MOP 19.7 billion.

Expectations

The VIP segment is also contributing to August growth. According to Morgan Stanley, the August VIP in August is higher than in June and July. Also, the liquidity in China (measured by M1 money supply) remains high, thereby supporting VIP segment growth.

The mass market is expected to drive long-term revenue growth in the region. For the first quarter of 2017, mass market contributed 44.0% of the region’s revenue, and the VIP segment contributed the remaining 56.0%. For the second quarter, mass market contributed 43.0% of Macao’s revenues, and the VIP segment contributed 57.0%.

Investors can gain exposure to casino stocks by investing in the PowerShares Dynamic Leisure & Entertainment ETF (PEJ), which invests 14.7% of its portfolio in casinos, including 5.4% in MGM Resorts (MGM) and 3.2% in Wynn Resorts (WYNN). However, it has no holdings in Las Vegas Sands (LVS) or Melco Crown Entertainment (MPEL).

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