Inside Asian Gaming

INSIDE ASIAN GAMING | January 2011 24 Market Outlook The report writers suggest combined 25% year on year growth in gross gaming revenues across the mass and VIP markets may be possible. When sector growth rates are analysed individually, the mass could expand by as much as 23% year on year, suggests Morgan Stanley. Some projections “Under the following aggressive but reasonable assumptions, we think Macau could achieve 25%YoY GGR growth,” say the authors. “Mass Revenue to grow at 23% YoY: Visitor Arrival at Macau and Mass Revenue per Visitor could grow at 12% & 10%, respectively in 2011 considering they had grown at 12% & 14% CAGR from 2004 to 2010,” suggests the report. “VIP Revenue to grow at 25% YoY: Market will see increase in number of VIP tables by 8% and VIP Win/Table/Day could potentially reach to US$30k (level reached in 2005) from current level of US$25k in 3Q10.” The authors also point out that market consensus typically starts conservative on Macau yearly revenue growth projections and then adjusts as the thing plays out. “Macau Gross Gaming Revenue (GGR) has shown growth of 57% YoY for 2010 up to November. Consensus is factoring in 16% in revenue growth for 2011. Over the past few years, consensus estimates have typically started off at 10-15% at the beginning of the year, then adjusting upward/downward accordingly through the year.” Morgan Stanley adds that supply-side limitations on the market (with only one new property, Galaxy Macau, offering approximately 400 new live tables coming on-stream in the second quarter of 2011) could help boost table occupancy and thus profitability—provided operators can up their operational efficiency and control costs at the same time. Other analysts have also suggested possible government caps to control aggressive competition on win-rate shares in the VIP sector could also support operators’ profitability in 2011 and beyond. “Drivers of 25% growth in VIP revenue: We estimate that the average number of VIP tables could grow roughly 8% YoY in 2011 given the opening of GalaxyMacau. If the credit environment remains easy, we think VIP Win/Table/Day will have to reach US$30K (similar to the peak reached in 2005), up from the current level of US$25K.” A key take away fromtheMorgan Stanley report is that themarket has to love the VIP segment because of its sheer size. But the lower volatility in mass market volumes of play (because of the segment’s lack of correlation with key economic indicators such as SHIBOR) and its better margins makes for a more sustainable business. “In the near term, we continue to like the VIP segment due to its size (72% of total revenue) and tremendous growth (69% YoY YTD). AlthoughVIP remains more volatile, risky and prone to any downturn, we expect momentum to be sustained in the near term. The mass business, however, is more resilient, less volatile and generates a higher margin for operators. Thus we think it is likely to be the better business in the longer term,” states the report. Can Efficiency up by 16% given 8% up of supply? VIP Revenue / Table / Day 30,083 20,760 23,748 19,910 19,178 25,829 30,000 33,000 - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2005 2006 2007 2008 2009 2010E 2011E 2012E (In US$) 16% Increase Source: DSEC, DICJ, Morgan Stanley Rsearch; E= Morgan Stanley Estimates Note: 2011-12 estimates presented in this chart are included in our Bull, but not Base case Mass Revenue per Visitor reached record high at MOP$2,400 in October 2010 - 5,000 10,000 2005 2006 2007 2008 2009 2010E 2011E 2012E Source: DSEC, DICJ, Morgan Stanley Rsearch; E= Morgan Stanley Estimates Note: 2011-12 estimates presented in this chart are included in our Bull, but not Base case Mass Revenue per Visitor reached record high at MOP$2,400 in October 2010 0.0 0.5 1.0 1.5 2.0 2.5 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 (In MOP$) 0 500 1,000 1,500 2,000 2,500 3,000 (In mn) Total Visitor Arrival Mass Revenue per Visitor Source: DSEC, DICJ, Morgan Stanley Research