Macau’s once dominant junket industry will likely fall to “near zero” levels following the closure of all Suncity VIP Clubs, with some short-term overlap to be felt in premium mass, according to investment bank JP Morgan.
In a Wednesday note examining the impact of recent developments related to Suncity, which saw its CEO Alvin Chau arrested by the Judiciary Police last weekend, analysts DS Kim, Amanda Cheng and Livy Lyu questioned whether this is an isolated incident for Suncity or part a broader crackdown on the junket system as a whole.
But either way, “It’s probably reasonable to assume junket VIP revenue would go to near-zero levels ultimately,” they state.
“We think the message from the government is clear, in that junkets’ proactive gambling promotion (such as credit extension, FX transfer, among others) for mainlanders will not be tolerated.
“This will not only cripple junkets’ ability to bring VIP players (to any jurisdictions, including Macau), but also prompt casino operators to reconsider their relationship/association with junkets, in our view, especially into this critical licence renewal period.
“Ultimately, we can envision Macau junkets becoming similar to ‘international marketing agents (IMAs)’ in Singapore (which are heavily vetted and highly regulated) and shrink to near-zero levels.”
The analysts also warn that the decline of Macau’s junket business could have implications for the mass sector given some premium mass players – JP Morgan estimates between 10% and 20% – have relationships with junkets. Some of those players could therefore be lost.
Conversely, operators will be able to deal with most players directly, allowing for higher margins than under a junket model.
“Note EBITDA margins from direct VIP (15% to 25%) and premium mass (30% to 35%) are much higher than junket VIPs (~10%) on a normalized basis,” the analysts write.
