Analysis: Macau casinos play best hands to win over premium customers

Sands China

04/06/2024 24:00

* 
      Premium mass market in focus as VIP numbers fail to
rebound
    

        * 
      MGM, Wynn outperforming Sands, Galaxy given bigger premium
focus
    

        * 
      Sands, Galaxy redeveloping, building new properties to
catch up
    

  
    By Farah Master
       HONG KONG, June 4 (Reuters) - A change in the type of
customers coming to Macau has seen smaller casino operators MGM
China  2282.HK  and Wynn Macau  1128.HK  reap rewards, while
larger rivals Sands China  1928.HK  and Galaxy Entertainment
 0027.HK  rush to catch up.
    As visitors gravitate back to the world's biggest gambling
hub, the recovery has shifted towards affluent premium mass
customers, whose individual bets at high-limit baccarat tables
range from hundreds of dollars to a few thousand dollars.
    The high roller VIP segment, which used to account for the
bulk of Macau's revenues, has collapsed due to strict
regulation, while the lowest spending mass segment involving
minimum bets of about $60 is still not back to 2019 levels.
    Macau is the only place in China where casino gambling is
legal. With expectations of 14% gross domestic product growth
this year, the special administrative region is an outlier as
the rest of the country grapples with a slowing economy and
sluggish consumption. 
    "Macau is doing well but not all operators are enjoying that
recovery," said DS Kim, an analyst at JPMorgan in Hong Kong. 
    Big operators like Sands and Galaxy have outsized exposure
to the lower end of the mass market, hence their share momentum
was not as good as they or the market had expected, he said. 
    Galaxy and Sands China shares have fallen by 11.2% and 16.7%
respectively since the start of the year, whereas MGM China and
Wynn Macau are up by 46% and 15.7% over the same period.
    "For now, as traffic and gaming demand has not yet recovered
to its 2019 levels, MGM China and Wynn Macau, given their
relatively smaller size and premium mass focused business,
benefit from better operating efficiency including marketing and
sales to premium clients," said Jennifer Song, an analyst at
Morningstar in Shenzhen. 
    GAME FACE
    Visitors to Macau are at 75% of pre-pandemic levels in 2019,
government data shows, while gambling revenues are expected to
reach 80% of pre-COVID figures this year.
        On recent earnings calls, the casino operators outlined
their growth strategies.
    MGM China has benefited the most from Macau's recovery, with
its gross gaming revenue share rising from 9.5% in 2019 to more
than 17% this year. It was the only operator allowed an increase
in gaming table numbers under a government reallocation from
January 2023 and it is adding more villas and suites to its
properties.
    Wynn Macau, which is building a food hall, continues "to
punch above our weight on a revenue per hotel room basis
generating meaningful market share," CEO Craig Billings said.
    But executives at Sands China and Galaxy, which have more
tables, said their resorts are well-poised to catch up. 
    Galaxy will open its high-end Capella Hotel next year and
increase demand from the premium mass segment, said Ying Tat
Chan, Galaxy's chief financial officer.
    Mass-market focused Sands China, which closed some hotel
rooms and its 15,000-seat show arena for renovations in January,
remains the biggest operator in Macau. 
    CEO Grant Chum said revenue per patron was higher than
before COVID, and as the number of visitors returned to
pre-pandemic levels, Sands China would be "best placed to
capture that growth when it comes." 
    The casino operators did not respond to requests for further
comment.
    
    DIVERSIFICATION
    The focus on premium visitors also appears to be aiding with
non-gaming spending, which was up 11% in 2023 to 71 billion
patacas ($8.82 billion) compared with 2019, according to Macau's
tourism bureau. That is a welcome sign for authorities mandating
casinos diversify away from gambling into other attractions like
shows, shopping and museums. 
    Any further economic slowdown in China would have ripple
effects on Macau and be first felt in gambling, executives and
analysts said, making it key for casinos to build out their
non-gaming amenities to attract a wider variety of visitors. 
    The non-gaming investments can also boost the casinos by
bringing in more foot traffic, said Vitaly Umansky, senior
analyst at Seaport Research Partners.
        Chinese authorities are publicly trying to boost Macau's
appeal, with a top official praising it as the "apple of China's
eye" during a visit in May, just days after the central
government expanded a scheme to allow more mainland visitors to
travel to Macau.
    Attracting visitors outside of mainland China, which
accounts for 70% of arrivals, is also a growing focus.  
    During the first week of May the top spending gambler was
for the first time ever a non-Chinese patron. 
    The high roller was one of more than 190,000 arrivals from
South Korea this year, now Macau's largest source of visitors
outside greater China. 
    ($1 = 8.0470 patacas)

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Macau casino market share    https://reut.rs/3VmNptI
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 (Reporting by Farah Master; Editing by Jamie Freed)
 ((farah.master@thomsonreuters.com; +852 3462 7709;))