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COMMENTARY

Macau casinos could lose VIPs to junket upstart

Hong Kong

THERE could be a new competitor on the cards for Macau's gaming giants. Suncity boss Alvin Chau helps bankroll half of all big spenders in the Chinese gambling enclave, and aspires to run his own casinos.

This may mean fewer high rollers at Wynn Macau, Galaxy Entertainment and others - an unpleasant prospect as China's growth slows.

Junket operators arrange visits by rich gamblers and lend them money. Their numbers have halved in five years as tougher regulations have crushed smaller players, leaving Mr Chau's unlisted Sun City Gaming Promotion as the undisputed market leader.

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Now he wants to own and operate casinos, with his publicly traded Suncity Group Holdings investing in Vietnam's Hoiana development. Running gaming venues is unfamiliar territory for Suncity, but this could pay off.

Vietnam is a short trip for Chinese tourists. Taxes are low, meaning higher margins. And Mr Chau can tap his huge client network. Shares in the Hong Kong-listed Suncity have more than doubled since it unveiled plans to buy the Hoiana stake.

This will initially be little more than an irritation for Wynn, Galaxy and rivals. The Hoiana will have 1,000 hotel rooms and 140 gaming tables: it would take 50 such resorts to match Macau.

In any case, the casino groups - including Melco Resorts & Entertainment, MGM China, Sands China and SJM - depend less on high rollers than in the past.

Breakingviews calculations suggest that at most a quarter of Macau operators' Ebitda comes from VIPs. China's softening economic performance, aggravated by trade tensions, already presents risks for Macau. The squeeze may show as operators release second quarter results this week.

Melco Resorts and Entertainment - the first to report - says revenue fell by around 5 per cent from a year earlier.

And Suncity's Vietnamese ventures might be the start of something bigger.

Mr Chau could try for a licence in Macau, should a new concession come up for grabs; officials might prefer a local outfit. That would be a long shot, but stranger things have happened - the Lui family started in construction before founding the Galaxy gaming empire.

Macau's moguls had better keep a close eye on Mr Chau. His Sun City Gaming Promotion commands around half of the VIP market in Macau, according to research by Union Gaming. Junket operators organise visits by wealthy gamblers to casinos, helping arrange credit and collecting debts.

Mr Chau also chairs Hong Kong-listed Suncity Group Holdings, which does not run any junkets. He and partner Cheng Ting Kong together own 72.2 per cent of this business.

The Hong Kong-traded firm has agreed to buy 34 per cent of a casino resort being developed in Vietnam, it said on May 31, by acquiring a company from Mr Chau.

Another unit of the public company is providing consultancy and management services to the project.

Suncity Group Holdings is also seeking a partner to pursue projects in Japan, executive director Andrew Lo told Bloomberg in September. He said it was interested in owning stakes in and managing casinos.

Macau's casino revenues rose by 19 per cent year-on-year in the first half of 2018 to 150 billion patacas (S$25.3 billion), according to official data. VIPs accounted for 56 per cent of the total.

Melco Resorts and Entertainment's adjusted property Ebitda rose by 8 per cent year on year to US$356 million in the second quarter, while revenue fell by 5.4 per cent to US$1.2 billion, the company said on July 24.

The US-listed unit was the first of the Macau operators to report second-quarter earnings; its peers will release results in late July and August. REUTERS BREAKINGVIEWS