Asia Gaming - Where are Chinese mass gamblers going?


Survey indicates mediocre interest in regional casinos, but high in US ones
UBS Evidence Lab interviewed 510 Chinese gamblers from Macau's base mass segment (average Rmb12,000 spending on chips per person) and found some awareness of and interest in visiting casinos in other jurisdictions. However, for Asian destinations, the difference between players who intend to visit and those who have not visited is small; we therefore believe only the US has a meaningful opportunity. We think other Asian casinos will unlikely be able compete with Macau for base mass gamblers until at least 2019, when quality products and critical mass might form in markets such as Korea. However, we believe competition for VIP players has begun and will continue.

What are the plans/intentions for visits and spending in Macau?
The survey shows healthy spending intentions among base mass customers, with a 5% net increase in frequency and a slight (2%) increase in gambling budget for the next trip. This supports our base mass demand growth estimate of about 7% in H116 from the H215 run rate. To our surprise, high-end spenders in the base mass segment (average drop of Rmb63,000 per trip) expressed the strongest interest to visit more often (19%, compared with 5-9% for lower-end spenders) and planned a slightly larger budget increase. The findings also confirm our observation that MGM Macau and City of Dreams have the highest exposure to higher-end base mass players.

Is new supply influencing demand? How will market share shift?
Among the respondents, 56% believe they will visit Macau more often because of new/upcoming casinos, with Studio City more favoured than Galaxy Macau's phase 2 among recent openings, and The Parisian more preferred among upcoming supply. The survey suggests recent competitive openings appeal more to players at Sands than other casinos; SJM could face pressure from The Parisian; and there is little overlap between Melco Crown and MGM/Wynn's customers. Client retention is high at about 75% for existing casinos, except for SJM (less than 60%). The survey indicates any further UnionPay and smoking restrictions could significantly impact mass demand; we view them as low-probability but high-impact risks to Macau.

Technical Analysis
Daily Chart
Stock implications: most positive for Melco Crown, least for SJM
Our 2016 EBITDA forecasts for Melco Crown and SJM have been materially (over 10%) above and below consensus, respectively. We believe the survey findings on spending intentions, reaction to supply and retention reinforce our views. Outside of Macau, we prefer MGM Resorts, and Travellers is our least preferred. (Read Report)

Source : UBS Global Research

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