Reuters Insider - Breakingviews: Look mass market to beat Macau slowdown
03/11/2014 05:48
Click the following link to watch video:
https://insider.thomsonreuters.com/link.html?cn=share&cid=1323076&shareToken=Mzo1YjczOGZjZC05YjJiLTRkZTYtYWZlNC1jNDE5OTEzZDEwNzA%3D&playerName=ReutersNews
Source: Thomson Reuters
Description: A worrying dip in Macau casino revenue has made it
clear that the gambling industry should shift
focus away from VIPs and target the mass market,
argues Breakingviews' Ethan Bilby.
(To access all exclusive Reuters Insider programming visit: http://insider.thomsonreuters.com)
Short Link: http://reut.rs/1wWdL3x
Transcript (May be auto-generated)
Macau's revenue dip is starting to look like a snowball downhill, Ethan. That's
right, Tara. I mean this could be the worst year for Macau on record. Barclays
is estimating a 1% decline in annual gaming revenue and we think the next year
might not be any better and the street just isn't pricing in that these stocks
may not see growth recover. It could be a falling growth or even slow growth
next year and that's a pretty bad situation. In terms of VIPs, which a lot of
these guys depend on, they're staying away because of China's anti-luxury
crackdown and its other negatives like a smoking ban on the gaming floor. But
it's not all bad news. If gaming companies can grow the mass market - that's
tourists, they can still see earnings growth and that's because tourists may
bring in lower revenue but they bring in higher margins. Now I know you've been
crunching the numbers as to which companies look most vulnerable here and again,
it's those that are focused on those high rollers or VIPs. That's why we think
companies like Galaxy Entertainment, and Wynn Macau may have a hard time. And
that's because VIPs are so important to their revenue. I mean we're looking at
maybe, if VIPs declined by 20% next year but mass market grew by 10%, then
actually a lot of casinos could still see earnings grow. And that's just because
the EBITDA margin is better for the mass market segment. Now, for those who are
really dependent on high rollers, it could still see declines of 1% to 3% in
EBITDA. So basically shipping the mass market, going more to tourists like Las
Vegas could be the best way to beat the odds in Macau slowdown. Okay. Beating
the odds and Macau's revenue slowdown, look for those players who are into the
mass market and stay away from those with the high rollers