Macau casinos bet on China's rising middle class

Thu Aug 8, 2013 2:11am EDT
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By Farah Master

HONG KONG (Reuters) - The game is changing for casinos in Macau, the world's gambling capital, as fun-seeking middle-class Chinese visitors follow high-roller VIP gamblers in ever greater numbers to try their luck in the only place in China where casinos are legal.

The growth of the so-called premium mass segment is setting the stage for what executives hope will be a second boom in the former Portuguese colony, where a reclaimed swamp-turned casino playground known as the Cotai Strip has already been paved with gold by big-spending VIP gamblers from the mainland.

"In the next two to three years it is going to be the next wave of the golden age of Macau," Lawrence Ho, chief executive of Macau casino operator Melco Crown Entertainment Ltd MPEL.O6883.HK, said during a conference call this week.

The company, co-owned by Ho and Australian billionaire James Packer, said on Wednesday net income doubled in the second quarter thanks in part to strong growth in visits from members of China's rising middle class. One of six licensed casino operators in Macau, Melco has two resorts there and is opening a new $3 billion property in mid-2015.

Melco and rivals such as U.S.-owned Sands China Ltd (1928.HK: Quote) and Wynn Macau Ltd (1128.HK: Quote) have traditionally made most of their profits from wealthy customers who spend more than 1 million yuan ($163,400) each bet. But as demand from big whale gamblers ebbs amid China's economic slowdown, casinos are increasingly vying for the lucrative upper-middle-class market.

Revenue generated by Macau's mass segment is set to grow by 30 percent this year compared with around 10 percent for VIPs. In previous years VIP growth eclipsed that of the mass segment.

Made up of newly minted customers who spend anywhere from a few thousand yuan to under one million yuan, premium mass customers generate higher margins and more stable revenue for the casinos than super-rich gamblers.

While China's economic slowdown has kept away some wealthy customers, as shown by slightly slower growth in VIP visits, it has failed to dull Macau's appeal for the country's increasingly affluent middle class.   Continued...

A man walks past Galaxy Macau in Macau June 13, 2013. REUTERS/Paul Yeung