Macau’s Gamble On High Rollers
Gambling revenue in Macau rose by 57% in August 2011compared to the same month last year, meaning another record month. For the first eight months of 2011 Macau’ gambling revenue totalled US$21.6bn, a 46% year on year rise. In August alone gambling revenue was US$3bn.
Of Macau’s six casinos licensees SJM operates 20 casinos, Galaxy five properties, Venetian Macau and Melco Crown 3 casinos each and MGM and Wynn Macau one property apiece. According to Deutsche Bank, Wynn Macau currently has 15% of Macau’ gaming market share, while SJM has 30%, Sands China 16%, Galaxy and Melco Crown 14% each.
However, the pace of revenue growth is not reflected in the share price of Macau’ casino operators.
For H1 2011 Wynn Macau’ casino revenue increased by 42%, reaching HK$13.5bn, and the VIP segment turnover increased by 48% (HK$482.1bn). With such a good performance it might be expected that the share value of the company would be mirroring the rise in revenues, regardless of the August stock market turmoil. But Wynn Macau’ shares only increased by 3% since those interim results were released. A closer look at the published results, however, can shed light on why the shares have not performed as strongly.
For SJM holdings VIP gaming operations accounted for almost 71% of the Group’ total gaming revenues for the first half of 2011, up from the 66% for the corresponding period of 2010.
In the second quarter of this year, Galaxy Macau had VIP gaming revenue of HK$ 3.1bn out of the total revenue of HK$ 5.1bn.
Deutsche Bank estimates that VIP segment will make up 73% of Macau’s gaming revenue in 2011 and 71% in 2012. It also estimates that the cost of junket operators to be around 30% gaming revenues, almost ten times the cost of labour.
The heavy spend of VIP is also confirmed by the fact that visitor numbers have increased at a much slower pace than the increase of gaming revenue. In 2010, Macau’ gaming revenue increased by 57% compared to 2009, while visitor arrivals only increased around 15%, and this trend continued in the first half of 2011.