JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Investment Advisors

Investment Advisors, JL Warren Capital

Junheng Li

Thematic (Sector/Industry)

Australia Consumer services / Thematic (Sector/Industry)

<p>We are turning positive on Macau gaming from previously neutral due to 1) the completion of a shift to a mass-led growth, thanks to rising average bet size which correlates with the increased spending power of the Chinese players; 2) improved macro condition in China, as better-than-expected Q1 GDP indicated; 3) potential normalization in VIP rolling in 2020 after dropping high-double-digits this year.  Longer term, role of VIP gaming will continue to contract relative to mass gaming, which is Beijing’s intention for stability and capital flow control purpose.  The process will be gradual, and all casinos operators should have enough time to further out their facilities for premium-mass, to absorb the players converted from VIP rooms.  </p><p>Macau is viewed by many as a trade on China macro factors ranging from middle-class discretionary consumption, credit supply especially in old-economy, and cross-border capital flow.  While the third factor – policy on capital control – is hard to gauge, consumption and credit supply are both tailwind for the gaming sector in near term. Since March, analysts have gradually revised up GGR estimates for 2019 but we believe that there is future upside as comps in VIP segment becomes easier beyond in the next few quarters.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/135/original/1.jpg?1556497247" class="editor-image img-responsive" data-smartkarma-image-id="86135"></figure>

We are turning positive on Macau gaming from previously neutral due to 1) the completion of a shift to a mass-led growth, thanks to rising average bet size which correlates with the increased spending power of the Chinese players; 2) improved macro condition in China, as better-than-expected Q1 GDP indicated; 3) potential normalization in VIP rolling in 2020 after dropping high-double-digits this year.  Longer term, role of VIP gaming will continue to contract relative to mass gaming, which is Beijing’s intention for stability and capital flow control purpose.  The process will be gradual, and all casinos operators should have enough time to further out their facilities for premium-mass, to absorb the players converted from VIP rooms.  Macau is viewed by many as a trade on China macro factors ranging from middle-class discretionary consumption, credit supply especially in old-economy, and cross-border capital flow.  While the third factor – policy on capital control – is hard to gauge, consumption and credit supply are both tailwind for the gaming sector in near term. Since March, analysts have gradually revised up GGR estimates for 2019 but we believe that there is future upside as comps in VIP segment becomes easier beyond in the next few quarters.  

Macau’s Transforming from VIP Centric to Mass Gaming Driven by Rising Mass Bet Budget