High-Roller Volume Rebounds at Australian Casinos

In 2016, Crown Resorts had nineteen of its employees placed under arrest in China for promoting gambling in the country and trying to lure its high-rolling players to the company’s casino in Melbourne. Coupled with a slowing down of the Chinese economy, a number of gaming analyst subsequently predicted a substantial drop off in foreign high-roller volume in Australia similar to the one currently being experienced in Macau.

According to a recent report released by Morgan Stanley, however, current trading conditions for foreign VIP programs in Australia remains “solid”, and as Monique Rooney, the equity analyst who compiled the report, explains:

“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. Further feedback suggests that overseas VIP market growth remains very strong relative to Macau – particularly in the Philippines and Cambodia.”

Macau Casino Shares Pummeled

Australian casino operators have been closely following the situation in China, which has recently seen Macau’s casino share prices tumble by almost 15% following a sharp reduction in spending by Chinese high-rollers. In September, Macau’s casino revenues also fell to a two year low of $2.73 billion, marking a tiny 2.8% year-on-year improvement in a market more used to returning double digit growth.

While Typhoon Mangkhut, the world’s most destructive tropical cyclone this year, was responsible for a great deal of the decline, a number of other factors have also been weighing heavily on its market. This includes China’s economy losing steam as President Trump escalates his trade war with the country, as well as Beijing once again intensifying its anti-corruption crackdown as it seeks to reduce inequality and materialism in Chinese society.

Naturally, Chinese high-rollers have felt themselves increasingly in the government’s crosshairs, and so have dramatically cut back on their gambling activities, leading to a corresponding fall in VIP spending. Against this backdrop, Australian casino giants have warily been watching Macau’s casino stocks sink, and been bracing themselves for a subsequent drop off in their own VIP revenue streams.

VIP Trading Remains Solid

Following the 2016 arrest of 19 Crown Resorts employees, the Australian casino market saw a significant 49% drop in its high roller turnover. After the case was resolved, however, the Australian VIP market has since turned around and experienced a rebound in growth.

According to financial results covering the 12 month period ending June 30, for instance, Crown Resorts saw revenue for its VIP program soar by a massive 55% to $51 billion, with the story mirrored across other casino groups, including The Star which posted a 54% jump in its foreign VIP revenue to $61 million.

Nonetheless, the situation currently unfolding in Macau is still likely to result in a reduction in the number of Chinese whales visiting Australia’s casinos, with Macquaire Wealth Management predicting lower foreign VIP revenue growth on account of the “slowdown” in Macau. Ken Barton, chief financial office of Crown Resorts, has also chosen to take a more prudent approach to developments, and speaking recently to the Sydney Morning Herald, said:

“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.”

Striking a more optimistic note, however, Morgan Stanley has said that “current concerns are being overplayed”. In the meantime, the Star Entertainment Group, Australia’s second-largest casino operator with casinos in Sydney, Brisbane, and on the Gold Coast, has been named as Morgan Stanley’s “top casino pick” on account of its strategic alliance with Hong Kong partners Chow Tai Fook Enterprises (CTFE) and Far East Consortium (FEC) to promote mutual business growth. Both companies currently hold stock in the Australian casino operator, with all three businesses already partnering in the huge AU$3 billion redevelopment of Queen’s Wharf in Brisbane.