MACAU: IS VIP EVEN GROWING?

No question Mass is still generating sequential growth but VIP growth looks flattish since June.  Our 2012 growth projection of 10% has Mass leading the charge.

 

 

It may sound snobbish for us to turn our nose up to a month where Gross Gaming Revenues (GGR) grew 32% YoY, but November confirmed a negative trend that began around June.  Seasonally adjusted sequentially growth in Junket volumes (Rolling Chip or RC) has been fairly flat since June.  In other words, June was the last month where we saw a non-seasonal jump in GGR. 

 

RC in June of 2011 only fell 6% MoM while June of 2010 dropped 19%.  Since June of 2011, MoM growth has lagged 2010 significantly.  Using June as the base for each year, the 2nd half of 2011 lag is even more pronounced.  Looking at it a different way, the chart below shows that RC volume was actually lower at the end of November than it was in August on a 3 month moving average.  Since June was the first month of the 3 month average ending August 2011, that roughly confirms the MoM analysis.  Finally, November generated the 3rd lowest RC volume of this year, behind only January and April.  Interestingly, October 2011 – which was a record and viewed as a blockbuster month – experienced the slowest MoM growth since the financial crisis, and that was off of a low September 2011 base. 

 

MACAU: IS VIP EVEN GROWING? - macau1

 

2012 Projections 

As can be seen in the above chart, the good news is that the Mass business is still in an upward trajectory.  We expect that to continue.  For 2012, we are projecting Mass growth of 22% but VIP revenue growth of only 6%.  Our RC volume growth estimate is 5%, with approximately 11% growth in the first half of the year and low single digit growth in the second half.  This implies very little sequential growth in dollar volumes from current levels.  Given the macro environment and the tremendous growth in junket liquidity, credit, and volumes over the last few years, we think this is a reasonable, if not conservative, assumption.  While only a 10% YoY total GGR growth year could spook investors, profitability will still be strong and not far from consensus estimates, assuming there is no junket war.  Mass revenue is the key and we see tremendous long-term growth in this high margin business.

 

MACAU: IS VIP EVEN GROWING? - he2