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Asia – ‘Chinese-related VIP weakness to spill over’ into other Asian markets

By - 30 November 2018

Fitch Ratings believes that several Asian casino sectors will be vulnerable to the slowing Chinese economy over the next year with growth prospects pitched in the ‘mid-single-digits’ in 2019.

The ratings agnecy expects this ‘Chinese-related VIP weakness to spill over’ into other markets including Singapore, Australia and Las Vegas. It warned that ratings in the Asian Pacific are at already-elevated levels of capex and VIP-related volatility.

However, it gave a ‘long-term positive outlook as we believe greater China, with a growing middle class, is under penetrated.”

It said the VIP sector would continue to slow into 2019 leaving mass market ‘as the primary growth driver over the past few months.’

“We expect this trend to continue into 2019 as VIP is more sensitive to the economic and credit conditions on mainland China,’ it advised. “We expect Chinese-related VIP weakness to spill over into other markets including Singapore and Las Vegas Strip”

“Our forecast is tempered by the tougher y-o-y comparisons and the risk of a weakening Chinese economy. Fitch forecasts 6.1 per cent 2019 China GDP growth, a slowdown from 6.6 per cent forecasted 2018 growth,’ the analytical group added. “Macau’s VIP segment, which has fuelled much of the growth in 2017 and early 2018, slowed with the mass market as the primary grow the driver over the past few months. We expect this trend to continue into 2019 as VIP is more sensitive to the economic and credit conditions on mainland China.”

Whilst acknowledging that new opening in Macau including Grand Lisboa Palace, the ramp-up of MGM Cotai and Morpheus tower at City of Dreams, as well as new infrastructure projects such as the bridge to Hong Kong and Zhuhai, will drive growth, it still expects growth in the VIP sector to slow.

“Singapore gross gaming revenue declined three per cent yearly in first-half 2018, after growing 14 per cent in 2017,” it warned. “The recent weakness is largely driven by the VIP segment, which is slowing across the region and facing increased competition from expansions in Philippines and other newer markets.”

“Major operators reported weakness in third-quarter 2018, primarily due to event schedule and competitive pressures in the leisure segment, but generally see healthy forward trends for fourth-quarter 2018 and 2019.”

In Fitch’s view, fundamentals for the Malaysian gaming market remain stable.

“However,” it added, “the proposed revision of casino duties to up to 35 per cent of net collections announced recently will likely pressure margins at Malaysia’s sole gaming operator, Genting Berhad. For Australian operators, resilient underlying domestic demand and a favourable regulatory environment continue to be the main factors supporting our expectation of stable cash and EBITDA generation in 2019.”

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