Inside Asian Gaming

July 2013 | INSIDE ASIAN GAMING 17 IN FOCUS 4% of total revenue in June. Slot revenue in recent months has been growing at a decidedly slower rate than revenue from the tables and ETGs served by live dealers that constitute the mass segment. It was up 13% in June, but only 6% in the second quarter. The VIP sector had contributed 71% of total revenue in 1Q 2012, but by June this year its share had declined to 67%. Both VIP revenue and VIP rolling chip volume were up 18% year on year in June (the industry-wide VIP win rate in 2Q 2012 and 2Q 2013 were identical, at 3.18%), coming off a low base in June 2012, when rolling chip volume had declined 2% year on year. The year-ago July and August VIP volume comps are weaker still, suggesting the VIP sector will continue registering moderate growth in the months ahead against low bases of comparison. The mass market, by contrast, is advancing against a strong growth base, with mass revenue having consistently grown around 30% in the second half of last year, even as VIP growth faltered. In 2Q 2013, total Macau gaming revenue increased 16% year on year, mass grew 31% and VIP was up 11%. Looking ahead, J.P. Morgan’s Kenneth Fong forecasts Macau revenue to grow “by around a mid-teen rate” in July. Although credit tightening in China and recent turmoil in global financial markets have raised concerns about the sustainability of growth in the second half of the year, it seems likely any fallout would be concentrated in the VIP business, which depends most on the free flow of credit, while Macau’s mass sector will continue its relentless forward march supported by infrastructure improvements, new resort and gaming capacity, China’s burgeoning middle class and, of course, all that pent-up demand for casino gaming on the mainland, only aminiscule fraction of which is currently being served by Macau. Market Shares Following the liberalization of Macau’s casino industry in 2002 allowing the entry of five new operators, the market share lead of erstwhile monopoly operator SJM has been steadily eroded. In the latest quarter, SJM experienced a two percentage point drop in its share of overall revenue to 25.0%, though that’s largely the result of an unlucky quarter in its VIP segment—its 2Q VIP win rate of 2.93% was the lowest among the six operators. The industry-wide average was JPMMacau Profitability Index Source: J.P. Morgan estimates, DICJ 60% 50% 40% 30% 20% 10% 0% Sector profitability HK$bn Profitability yoy chg in % (R.H.S.) 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Jan11 Jan12 Jan13 Feb11 Feb12 Feb13 Mar11 Mar12 Mar13 Apr11 Apr12 Apr13 May11 May12 May13 Jun11 Jun12 Jun13 Jul11 Jul12 Aug11 Aug12 Sep11 Sep12 Oct11 Oct12 Nov11 Nov12 Dec11 Dec12 Luck-Adjusted JPMMacau Profitability Index Source: J.P. Morgan estimates, DICJ Jan11 Jan12 Jan13 Feb11 Feb12 Feb13 Mar11 Mar12 Mar13 Apr11 Apr12 Apr13 May11 May12 May13 Jun11 Jun12 Jun13 Jul11 Jul12 Aug11 Aug12 Sep11 Sep12 Oct11 Oct12 Nov11 Nov12 Dec11 Dec12 6.00 5.00 4.00 3.00 2.00 1.00 0 60% 50% 40% 30% 20% 10% 0% Sector profitability HK$bn Profitability yoy chg in % (R.H.S.) In the latest quarter, SJM experienced a two percentage point drop in its share of overall revenue to 25.0%, though that’s largely the result of an unlucky quarter in its VIP segment—its 2Q VIP win rate of 2.93% was the lowest among the six operators.