A number of industry insiders anticipated that a collapse in the Australian casino space would result from the slowing of China’s economic growth. They argued that Asian high-rollers would stop coming to casinos, causing a drop like what has been seen in Macau. Now, however, industry analysts are indicating that those fears are exaggerated and “overplayed.”
Shares in Macau casinos dropped by around 15% over the past couple of weeks as Chinese high-rollers have not been opening their wallets as much. The slide comes as the trade tensions between the US and China increase, which has resulted in greater uncertainty and a softer Macau economy.
Crown Resorts, The Star, SkyCity and other Australian casinos have been closely monitoring Macau to see if the same trend would take place in their venues. China’s deep-pocket gamblers have been a steady source of revenue that they’re certainly not willing to give up.
However, Morgan Stanley analysts point out that, while the concerns are valid, there is no indication that the casinos are going to suffer the same way as Macau. Recent discussions have resulted in the determination that current trading will remain solid for a number of Australia’s foreign VIP programs.
According to Morgan Stanley analyst Monique Rooney, “Our recent industry feedback has allayed some of these concerns, with Chinese hotel/leisure companies reporting minimal impact on current trends and ample junket liquidity after recent consolidation.” She added, “Further feedback suggests that overseas VIP market growth remains very strong relative to Macau – particularly in the Philippines and Cambodia.”
When the Chinese government began cracking down on gambling in 2016, foreign high-roller volumes in Australia dropped substantially. However, they have since climbed back out of the hole. Crown Resorts saw a 55% increase in its latest fiscal year and Star reported similar results, showing that its revenue from the VIP programs had jumped 54% year-on-year.
Ken Barton, CFO of Crown Resorts, said that he remains cautious on the VIP program growth. He explained last month, “It’s very, very hard to predict from half to half, let alone from year to year, what sort of activity we can expect in VIP. We are cautious that people don’t get ahead of themselves and think that this is some sort of VIP boom that’s occurring.”
Morgan Stanley indicated that it will continue to stay on top of the situation. It added that the “current concerns are being overplayed.” The Star, which has casinos in Brisbane, Sydney and on the Gold Coast, is in a highly favorable position due to relationships it maintains with its partners in Hong Kong, Far East Consortium and Chow Tai Fook. Morgan Stanley has said that The Star is its “top casino pick.”
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