Australia and New Zealand to benefit from Macau’s downturn

The Australian and New Zealand market is poised to see strong growth in its VIP gaming market this year, benefiting from Macau’s downturn, according to a report by Morgan Stanley Research analysts.
VIP gaming market growth is expected to be 48 percent and 26 percent for the fiscal year 2015 to 2016, respectively, an upward revision from 35 percent and 10 percent.
Echo Entertainment Group, Crown resorts and SkyCity “are driving structural VIP growth by providing junkets with better working capital and commission rates vs. Macau. [Echo] is most levered to VIP growth.”
The analysts expect Macau VIP gross gaming revenue to decline 35 percent in 2015, a less optimistic outlook than Fitch Ratings which estimated revenues would go down 22 percent.
“Our meetings with Macau junkets and casinos indicate the ongoing VIP slowdown is
primarily due to junket illiquidity, alongside China anti-corruption measures such as transit visa restrictions.”
“Junket collection and bad debt cycles remain poor due to a slowing Chinese macro and property market, while also finding it hard to source funding capital from casinos and investors. In turn, junkets are becoming more cautious in providing credit to VIP customers.”
The report says that, in contrast, junket operators have dubbed Australia as a key jurisdiction benefiting from Macau’s slowdown due to its operators’ willingness to provide funding and higher commission rates, and expects Australia and New Zealand to grow theirits share of the Asian VIP market from 4.0 percent in 2014 (A$1.6bn) to 6.8 percent by 2017 (A$2.4bn).
“Organic Chinese VIP visitation to Australia continues to grow, due to family and business reasons. To be clear though, the VIP segment is highly volatile, risks to our thesis are
changes to China political conditions, and competition from Macau Cotai Phase 2 and international casinos.”

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