Macau’s VIP gaming sector could take five years to recover from the headwinds that have devastated gross gaming revenues in 2020, with volumes to remain below 2019 levels even by 2025.
Analysts have this week painted somewhat contrasting pictures of what 2021 has in store for the region’s gaming operators, with some predicting strong growth in the second half of the year while others express concern that the impact of COVID-19 could linger longer. But they all agree there is no sudden resurgence in sight for VIP, with Sanford C Bernstein’s Vitaly Umansky, Tianjiao Yu and Kelsey Zhu estimating VIP GGR to “still be below 2019 levels by 2025.”
“VIP is likely to continue to be negatively impacted by scrutiny around money transfers and customer and agent concerns about dealing with junkets,” the brokerage states. Bernstein analysts see VIP recovering to around 50% of 2019 levels this year and to around 90% in 2022 before stagnating, versus 75% recovery for mass in 2021 and 110% in 2022.
However, the challenges faced in VIP “may have some positive impact on premium direct and premium mass as some customers shift game play,” they state.
“In the early stage of recovery, we expect operators who have outsized relative positions in premium mass to fundamentally outperform (Melco and Wynn Macau top picks) over the next 6+ months, as premium customers are less affected by the economic impact related to COVID-19 and fewer numbers of customers are necessary to drive GGR growth.”
That view isn’t entirely supported by Credit Suisse analysts, who believe the lucrative premium mass – credited for helping Macau’s casino operators return to positive EBITDA in 4Q20 – may face its own headwinds in the coming months.
“We believe that a key constraint now is not the COVID-19 test [required to enter Macau], but regulatory,” write analysts Kenneth Fong, Lok Kan Chan and Rebecca Law. “On the ground, we hear that frequent gamblers are taking a longer time to obtain visas, money flow is still tight, and junket credit extension is cautious.
“China’s newly amended criminal law, which includes casino operation and cross-border gambling facilitation, will be effective 1 March 2021. Many junkets and premium mass hosts plan to limit their China visits.
“High-end premium mass (comprising around 30% of mass GGR) sees a weaker outlook amid constraints to capital accessibility and lower visit frequency. It is also tougher to grow new players amid tight regulatory controls and VIP weakness.”
Rather than take a positive view of 2H21, the Credit Suisse analysts believe vaccine coverage can only reach 40% by the end of the year and have subsequently cut their 2021 GGR forecast by 14% and 2022 forecast by 12% due to further downside risks.