GGRAsia – Credit worries as Macau mid-tier junkets grow: JP Morgan

Credit worries as Macau mid-tier junkets grow: JP Morgan

May 02, 2017 Newsdesk Latest News, Macau, Top of the deck

‘Mid-sized’ Macau junkets have been gaining market share in the city’s VIP gambling segment, suggested a Monday note from brokerage JP Morgan Securities (Asia Pacific) Ltd.

The institution included the observation in a market round-up involving commentary on April’s 16 percent year-on-year increase in Macau casino gross gaming revenue (GGR). A number of investment analysts have identified strength in high roller gambling as an important factor in the expansion.

“Within VIP, we notice mid-sized junkets are gaining [market] shares recently (versus the Big Three, i.e., Suncity [Group], Guangdong [Group], Tak Chun [Group]),” said the memo from JP Morgan analysts DS Kim and Sean Zhuang.

They added this was “bucking the trend of ‘junket consolidation’ in 2014-16, as these [mid-sized] junkets (such as David [Group], MegStar, Hengsheng [Group]) were able to replenish capital post- strong Chinese New Year and opened new rooms in recent months”.

But the JP Morgan team cautioned: “They seem to be generating good volumes for now, but the sustainability is something to be mindful of, as these mid-sized junkets tend to have relatively loose credit policy versus the Big Three (hence, higher credit/collection risks).”

Sanford C. Bernstein Ltd said the same day: “VIP GGR during the month was much stronger than we had expected. However, longer run we remain sceptical of a long-sustained double digit growth environment for VIP.”

Its analysts Vitaly Umansky, Zhen Gong and Yang Xie noted: “We see VIP slowing down in the second half (and perhaps turning negative in the fourth quarter). Mass GGR will need to show sustained 10 percent-plus year-on-year growth to maintain stock price momentum.”

“We believe that growth in April was driven by continued strong VIP demand, with recent commentary from operators suggesting that more and more are buying into the trend with increased VIP junket capacity,” said analyst Christopher Jones of the Buckingham Research Group Inc in a Monday memo.

Grant Govertsen of Union Gaming Securities Asia Ltd, noted April’s growth was better than consensus estimates, and was the “third straight month” this had happened.

Recent market growth had been driven by “Chinese monetary stimulus and the reinflation of the Chinese housing bubble; influences we think won’t drive prolonged, above-trend growth,” said Cameron McKnight of Wells Fargo Securities LLC.

The institution expects May casino GGR to expand by 14 percent to 18 percent year-on-year.

Mr Jones at Buckingham Research estimated May’s growth would be 13 percent to 15 percent.

“The average sequential increase from April to May has been 5 percent over the last 11 years, with the only sequential decline in 2006,” he stated.