Analysis-Macau casinos play best hands to win over premium customers

In Macau, a shift in customer demographics has resulted in smaller casino operators MGM China and Wynn Macau experiencing success, while larger rivals Sands China and Galaxy Entertainment are playing catch-up. The recovery in Macau’s gambling industry is now primarily driven by affluent premium mass customers, who place bets ranging from hundreds to a few thousand dollars at high-limit baccarat tables. The high roller VIP segment, which used to be the main source of revenue, has declined due to strict regulations, while the lower spending mass segment has not yet returned to pre-2019 levels. Macau, being the only place in China where casino gambling is legal, stands out as an exception with its projected 14% GDP growth this year, while the rest of the country faces a slowing economy and sluggish consumption.
According to DS Kim, an analyst at JPMorgan in Hong Kong, Macau is experiencing a positive recovery, but not all operators are benefiting from it. He explained that big operators like Sands and Galaxy, which have a significant presence in the lower end of the mass market, did not see as much share momentum as expected.

Since the beginning of the year, Galaxy and Sands China shares have dropped by 11.2% and 16.7% respectively. In contrast, MGM China and Wynn Macau have seen increases of 46% and 15.7% over the same period.

Jennifer Song, an analyst at Morningstar in Shenzhen, pointed out that as traffic and gaming demand have not yet returned to 2019 levels, MGM China and Wynn Macau are benefiting from their smaller size and focus on premium mass business. This allows them to operate more efficiently, including in marketing and sales to premium clients.

Overall, while Macau is showing signs of recovery, certain operators are facing challenges due to their exposure to the lower end of the market.
According to government data, the number of visitors to Macau has reached 75% of the levels seen before the pandemic in 2019. Additionally, it is expected that gambling revenues will reach 80% of the pre-COVID figures this year.

During recent earnings calls, casino operators discussed their strategies for growth.

MGM China has seen the greatest benefit from Macau’s recovery, with its share of gross gaming revenue increasing from 9.5% in 2019 to over 17% this year. They were the only operator permitted to increase their gaming table numbers starting in January 2023, and they are also adding more villas and suites to their properties.

Wynn Macau, which is currently constructing a food hall, continues to outperform in terms of revenue per hotel room and is gaining significant market share, according to CEO Craig Billings.

On the other hand, executives at Sands China and Galaxy, which have a larger number of tables, expressed confidence in their resorts’ ability to catch up.
According to Ying Tat Chan, the chief financial officer of Galaxy, the high-end Capella Hotel will be opened next year, which will lead to an increase in demand from the premium mass segment.

Sands China, which primarily focuses on the mass-market, is currently the largest operator in Macau. In January, the company closed some hotel rooms and its 15,000-seat show arena for renovations.

Grant Chum, the CEO of Sands China, stated that revenue per patron has surpassed pre-COVID levels. As the number of visitors returns to pre-pandemic levels, Sands China believes it is in the best position to capture the growth.

Neither Galaxy nor Sands China responded to requests for further comment.

The emphasis on attracting premium visitors seems to also have a positive impact on non-gaming spending. According to Macau’s tourism bureau, non-gaming spending increased by 11% in 2023 to 71 billion patacas ($8.82 billion) compared to 2019. This is encouraging news for authorities who have mandated that casinos diversify their offerings beyond gambling, including shows, shopping, and museums.
According to executives and analysts, a potential economic slowdown in China would have significant implications for Macau, particularly in the gambling sector. To mitigate this risk, casinos are advised to enhance their non-gaming offerings in order to attract a wider range of visitors.

Investments in non-gaming amenities can also benefit casinos by increasing foot traffic, as noted by Vitaly Umansky, a senior analyst at Seaport Research Partners.

In an effort to enhance Macau’s appeal, Chinese authorities have publicly expressed their support, with a high-ranking official referring to the city as the “apple of China’s eye” during a visit in May. This comes shortly after the central government expanded a program to allow more mainland visitors to travel to Macau.

Furthermore, there is a growing focus on attracting visitors from outside mainland China, as currently, 70% of arrivals are from the mainland. In fact, during the first week of May, the highest spending gambler was for the first time a non-Chinese patron.
This year, Macau has witnessed over 190,000 visitors from South Korea, making it the largest source of tourists from outside greater China. (The exchange rate is $1 = 8.0470 patacas).