Sterne Agee Updates Macau October Expectations

David Bain of Sterne Agee published a report on Wednesday detailing Macau gaming metrics for the month of October. According to Bain's checks, October mass table revenue fell 8.0 percent while VIP table revenue fell 30.8 percent. The analyst expected a high-single digit mass growth and a mid-30 percent VIP table revenue decline. “Our understanding is that the main variance versus our projection mostly stems from casino operators designating a portion of premium mass tables to VIP,” Bain wrote. Adjusting for this, we believe October mix results would have been closer to our estimates, though after some quick checks this morning, we believe mass would have likely been flat to +5% versus our high-single digit estimate.” Bain adds that casino operators have designated certain premium mass tables to VIP to comply with smoking restrictions to the mass floor while smoking is still permitted in VIP rooms. The analyst notes that premium mass revenue is responsible for “outsized” mass gross gaming revenue, although the volume only represents 15 percent to 20 percent of the mass market. Bain emphasizes the fact that premium mass margins were unchanged by the designation. Macau's gross gaming revenue continues to be negatively impacted by China's anti-corruption campaign, according to Bain. The analyst does state that his research shows the anti-corruption gain is not becoming incrementally worse, although it is not improving either. “A poor mass revenue result may mark the low point of potential negative investor sentiment, and the 'wait period' to buy or 'buy the dip' period we are currently in improves over-time, in our view,” Bain concluded.