Specialists Predict Shift in Macau's Economy Towards Elite Enterprises

Premium-Mass Gambling Shift in Macau

insider scoop from David McKee * Our website

Macau's commercial casinos are reshaping their strategies to cater to premium-mass customers, reported analyst David McKee after a recent trip to China.

McKee revealed that every company he met with was revamping their focus towards the high-spending, mid-tier market, a shift away from the base mass market once dominated by Las Vegas Sands and others.

Confronted with the question, "Are they being priced out?", McKee wasn't certain, suggesting that despite luxury amenities and jaw-dropping events like NBA China, the issue remains an open question, especially as hotel prices are expected to rise.

McKee pointed to the Grand Lisboa's refurbishment by SJM Holdings, Wynn Resorts's longstanding high-end orientation, and new high-end capacity from Sands and Galaxy Entertainment as evidence of this change. He suggested that this raises questions about the future of Macau's downtown casinos, previously marketed to VIP players who have all but vanished.

The Jefferies team discovered that underlying trends in Macau are "solid" and supportive of March gaming volumes. They also found that patrons are traveling for more days after the February holiday period, a trend that appears to be bolstering the seasonally weaker current month.

The promotional climate is also a plus for operators, labeled as benign and stable compared to conditions in 2024.

McKee noticed signs of growth potential in several new capital projects, including Galaxy's Andaz mega-resort, modeled after Venetian Macao, and Sands' conversion of 4,000 Londoner rooms into 2,400 suites. Galaxy's aid the shift towards electronic table games, attractive to younger players with smaller average bets, while VIP properties like Star World Casino, such as Galaxy's, struggle in the current climate, transitioning toward the mass market.

MGM Resorts International's Macanese casinos are performing well, focusing on maintaining margins over market share. The Londoner is cannibalizing smaller rooms for suite product, having already converted 60, and investing $28 million in villas for high-rolling players. Management reported that visitors are staying longer, stabilizing gaming revenue, and that demand for games is expanding, even for niche offerings like poker. MGM's premium-mass business is thriving, as is their mass-market trade, although the mid-tier segment faces challenges due to China's economy.

Visiting Wynn casinos, McKee's team observed "encouraging post-Chinese New Year trends" rather than the sharp peak usually seen. Management expressed optimism about the market's future, while acknowledging that it remains under-roomed.

Skipping over Melco Resorts, the Jefferies team detected that SJM is still targeting a 5% market share for its Grand Lisboa palace, and is planning a footbridge to Wynn's mass-transit station. They noted the influx of more quantity than quality players during Chinese New Year, and suggested that SJM must upgrade its service and products in order to attract premium-mass patrons.

Macau appears to be on par with, if not superior to, United States markets in terms of projected mid-single-digit growth in 2022. Analysts are most optimistic about Wynn, boasting external growth potential and internal value, while praising Sands' suite product and diversification, with a word of caution about The Londoner's relaunch. Galaxy's pursuit of special events like concerts also received praise.

On the other hand, mass-market gambling revenue is projected to dip 8-10% after Chinese New Year, with VIP win accounting for 3% of the market. For the week ending March 16th, win dropped 3% to an average of $77.6 million per day. Industry sources predict an average daily win of $72.5 to $80 million for the remainder of March, yielding a total gaming revenue of $2.3 to $2.5 billion.

Enrichment Data:

Background: Macau, a special administrative region of China, is world-renowned for its gambling industry, which generated over half of its total economy in 2019. However, the local government has been actively promoting non-gaming attractions to expand the economy and reduce dependence on casinos.

Current Scenario:- Macau's commercial casinos are transitioning towards catering to premium-mass customers, hoping to replace revenue lost from traditional high rollers.- Many companies are repositioning their offerings and refurbishing their properties to attract premium-mass customers.

Challenges:

It's difficult to attract premium-mass customers due to global economic uncertainties and geopolitical tensions.
Ongoing regulatory challenges and geopolitical headwinds, such as U.S.-China trade tensions, continue to impact the industry.

Market Trends:

The mass-market has shown resilience, with mass GGR reaching 140% of 2019 levels during certain periods in 2021, indicating potential for sustained growth.
New capital projects, such as Galaxy's Andaz mega-resort and Sands' suite product, offer growth potential.

Industry Outlook:

Macau's gaming revenue is projected to grow in the mid-single digits in 2022, but there is optimism for improved performance in the second half of the year.
Successfully addressing challenges and diversifying revenue streams will be critical for the industry's long-term sustainability.

In the coming days, Galaxy Entertainment's Andaz mega-resort, resembling Venetian Macao, might attract premium-mass customers, contributing to the refocusing of Macau's casinos.
Macau's financial sector is keeping a close eye on the potential growth associated with the transition of Sands' Londoner rooms into upscale suites, specifically aimed at the high-rolling market.
With the lingering question of affordability for premium-mass customers, analysts are watching how casinos like Wynn Resorts manage their luxury amenities and events like NBA China, set against the backdrop of expected hotel price rises.