_edited.png)
Macau Business
27 Nov 2021
VIP, premium mass gaming to suffer from Suncity case – Analysts
By Newsdesk
In addition to the VIP segment, premium mass revenue is also set to be negatively impacted by the arrest warrant issued by mainland authorities on Suncity boss Alvin Chau, gaming analyst Alidad Tash told Macau News Agency. Meanwhile, brokerage firm JP Morgan Securities (Asia Pacific) stressed in a note sent on Saturday that Chau’s detention sends “a chill down the spine of any and all junkets”.
Founder and CEO of junket operator Suncity Group Alvin Chau has been detained on Saturday morning by Macau police authorities following an arrest warrant issued by authorities in Mainland China’s Wenzhou city over alleged cross-border gambling activities.
“By targeting the largest and most high-profile junket operator, a clear message is being sent”, stresses Alidad Tash, managing director at 2NT8 who anticipates that the “Government will be asked to define the vague areas that junkets operate within, especially in light of the soon-expiring licenses. Casinos, junkets and some residents will demand to know what is and what isn’t legal”. As a result, gaming promoters will tend to “ freeze the shady area of their businesses, until they get a clearer picture from the government”.
The JP Morgan analysts also underscore the across-the-board effect of Chau’s detention by noting that “The fact that even he can be arrested – for just running the junket and doing (what seems to us like very) normal junket activities – should send a chill down the spine of any and all junkets.”
The VIP segment could “immediately contract in the coming weeks”, JP Morgan predicts, “perhaps by 30 per cent to 50 per cent from current run-rates”. The brokerage firm adds that they have already modelled VIP only driving 1 per cent to 4 per cent of operators’ earnings before interest, taxation, depreciation and amortisation (EBITDA) in 2023 (or about 2 per cent of sector profit as a whole),”
Alidad Tash holds a similar approach. “I don’t think junket revenues will go straight to zero. A reasonable estimate would be half of the already-diminished revenues”.
The gaming consultant indicates that “for casinos, the impact would be small, since junkets accounted for 10% to 15% of their EBITDA in 2019, and even less since then. Cutting that in half is in the mid-single digits”.
Premium impact
Nevertheless another impact might be looming in beyond the VIP segment.
“The biggest impact in my opinion is on premium mass players, many of whom come from mainland China”, according to Mr Tash who highlights that “those
players have relied on junkets to bring money over to Macau, allowing them to bypass the annual $50,000 USD limit per person”.
This could mean that “given premium mass’s much higher profit margin, it is quite possible that ironically, their impact on the casinos’ bottom line would be larger (worse) than the junket segment”.
The Suncity case and the latest developments in the city’s casino industry prompt a reflexion on the way forward for the industry. The days may be numbered for business as usual when it comes to what hitherto have been the Macau-style junket activities.
“A Singapore-style junket system is very possible, whereby junkets will cease their illegal activities, and provide a lot more transparency. Effectively, they’ll become glorified travel agencies, with a marketing arm”.
As a result, “casinos will rely more on the healthy grind mass and mass mass segment, and less on premium mass, premium direct and junkets”, Mr Tash ponders.
