Macau undergoing paradigm shift from VIP to mass: Bernstein

Macau’s gaming operators have delivered results that are in-line or a slight shortfall of Street expectations in Y15Q3, 2015.

However, analysis from Bernstein shows that casino operators will begin to diverge in performance, as the competitive environment in Macau continues to evolve with a greater focus on the mass market. With new properties continuing to open in Cotai, Bernstein prefers operators with exposure to mass in Cotai – such as (Sands China, Melco Crown), whilst casino operators with Peninsula-concentrated product portfolios (Wynn Macau, MGM Macau, SJM Holdings) will continue to lose market share over the medium-term. Thus, Macau stocks should not be traded with group mentality, Bernstein advises.

“Our top picks remain: (1) Melco Crown, largely on continued success at City of Dreams and ramp up of Studio City, along with a potential buyout of Studio City’s minority JV partner which would be a strong catalyst; and (2) Sands China, for its resilient performance on Mass market, its continued focus on cost control, its overall Mass market strategy and focus and the sector’s highest dividend yield (~6.1 percent)”

Since a strong golden week in October, the Macau market has been running at a suboptimal level (average daily revenue MOP 555 mm). GGR may continue to face weakness from December into early 2016. “From now until early next year, we expect no material rebound of market GGR, although the y/y decline rate should taper to below 30 percent level and mass may reach positive y/y performance in early 2016.”

The opening of Studio City on Oct. 27 was in a gaming market which had seen 17 months of decline. However, as analysis suggests it generally takes 1.5 years to fully ramp up a casino’s mass market operations, therefore, it is too early to determine whether the operation can grow Macau’s mass market.

In the near-term, the VIP segment continues to be affected by liquidity constrained junkets and the anti-corruption campaign in China.

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