• We believe that most casinos in the region would switch their focus from the VIP segment to the Premium Mass segment, as recent changes in China laws are likely to reduce demand from the VIP segment
• Although Genting Highland has undergone an extensive revamp under the GITP program to better cater to the Premium Mass segment, we reckon that the current gaming tax structure would limit its overall competitiveness
• Gaming operators in Macau and Singapore have also indicated that they will increase efforts to improve their offerings in the Premium Mass segment as part of their recovery plans

Premium Mass Is the Way Forward

We believe that with the recent tightening of regulation in relation to offshore gaming in China, overall demand from the VIP segment is likely to take a hit as China customers have been one of the major contributors to the VIP segment over the past 5-10 years. To compensate for this, casinos are likely to switch their focus to the premium mass segment. As such, we are not surprised by the fact that casinos operators in Macau and Singapore have indicated recently that they will be focusing on the premium mass segment to drive the recovery post Covid-19. Although the premium mass segment has better margins compared to the VIP segment, the overall volume is still less than that for the VIP segment.

Malaysia Still Has An Edge But Not for Long

Unlike its other peers in Southeast Asia (SEA), the Philippines and Cambodia, which heavily focus on China VIP clients, Malaysia’s exposure to this segment is relatively limited due to its uncompetitive tax rate. While GENM’s Genting Highland might have an advantage against its peers, having extensively revamped its facilities under the GITP program to enhance its attractiveness to the Premium Mass segment, we believe that this edge would not be significant moving forward as others would likely follow suit. However, it would take a while before others are able to compete, as Premium Mass clients tend to be stickier, unlike VIP clients who are driven by rebates, in our view.

Lower Margins Are Inevitable to Sustain Competitiveness

We believe that with the increased competition in the Premium Mass segment, Malaysian operators would likely need to sacrifice some margins in order to maintain their competitive edge given that the other operators are able to provide more due to their lower tax structure. GENM had also previously mentioned that pre-Covid-19 margins are not sustainable, as they will cut their margins to maintain their competitiveness. Despite forecasting a recovery in earnings due to the low base effect, we are still keeping our Neutral call on the sector, as we believe that overall market dynamics will be more competitive post Covid-19.

Source: Affin Hwang Research - 19 Mar 2021