Structural improvements to the Macau tourism market, including an increase in the proportion of overnight visitors and higher yields from travellers, are tempered by continuing challenges in terms of local infrastructure and the limited scope of non-gaming attractions, says a new report from brokerage CLSA Ltd.
Its 158-page report analysing the impact of outbound Chinese tourism is titled “2017 Global Tourism: Making waves in Asia”.
“Chinese outbound tourists made 135 million overseas trips in 2016, which we expect to rise to 200 million in 2020, powered by growing disposable incomes, greater desire for experiences and better logistics,” the document authors stated.
The report identifies the key countries and regions in Asia that are likely to benefit the most from outbound Chinese tourism. The list includes: Hong Kong and Macau, which remain the two most-visited destinations, followed by Thailand and Japan. Singapore, Indonesia, Malaysia, the Philippines and Australia “are growing in popularity, with room for future growth,” notes the report.
The brokerage suggests that the cosmetics, luxury and gaming sectors are set to benefit from the spending of outbound Chinese tourists. Mainland Chinese travellers were the world’s largest spenders in 2016, according to the World Tourism Organization (UNWTO).
The document also noted that Japan – which is currently in the process of setting up a regulated casino industry – had identified expansion of inbound tourism as a key driver for the country’s economic growth.
“The biggest contributor to growth [of tourism to Japan] is Chinese tourists, which we expect to hit 11 million by 2020, versus 2.4 million in 2014,” said CLSA.
The brokerage made six suggestions about how Macau could capture high-value parts of the growing outbound Chinese tourist market. One was addressed to the country’s central government; three were addressed to the city’s government; and two were for the casino sector.
They were: an easing of policy regarding inbound visas for mainland China residents; execution of a “more strategic” local development plan; improvement of local infrastructure; provision of “clarity on concession renewals”; “more non-gaming amenities and events”; and “greater cooperation” between the city’s six gaming licensees.
“We believe the [inbound visa] process should be simplified and expanded in a way that allows higher spending [mainland] tourists (and not day-trippers) more regular visitation rights,” stated CLSA.
“One option would be to grant Chinese passport holders long-term multiple entries similar to Japan (five years) and the USA (10 years),” the institution added.
Table cap, non-gaming
The report, led by Oliver Matthew, CLSA’s head of Asia Consumer Research, and John Oh, head of Asia Gaming Research, also said that a “lack of visibility on [allocation of] gaming tables is unreasonable, given that firms are investing around US$3 billion on average for each new [casino resort] project”.
Macau casino operators are subject to a cap imposed by the city’s government regarding the number of new-to-market tables. The table cap aims to limit the increase in live-dealer table numbers to 3 percent compound annual expansion until the end of 2022, from a base of 5,485 tables recorded at the end of the fourth quarter in 2012. The cap has resulted in several new Cotai projects – involving in one case as much as US$4.4 billion in capital expenditure – being limited to a promise from the government of 150 new-to-market tables; with even those delivered in increments.
Regarding Macau infrastructure, CLSA said that – aside from the large-scale, high-profile schemes such as the Hong Kong-Zhuhai-Macau Bridge, and Macau’s light rail system – it would like to see “simple improvements, such as pedestrian walkways between the various hotels and resorts on the peninsula and on Cotai”.
In relation to any possible future gaming rights for the existing licence holders when their permits expire on various dates in either 2020 or 2022, the brokerage said: “The government should provide some visibility on concession renewals or else it may jeopardise future investment.”
Technically, the current permits can be extended – in increments of time to a maximum of five years from their original expiry date – but cannot be “renewed”, according to experts in Macau gaming law and regulation. At the end of any eventual extension process for the current permits, a new concession process must take place, involving a new public tender, according to one Macau gaming law expert recently interviewed by GGRAsia.
Regarding non-gaming, CLSA stated: “Macau was envisioned as a Las Vegas of the East, but aside from gaming and retail, not much has changed in 14 years. More is needed in terms of hotel rooms, convention space, family attractions, concerts and nightclubs.”
It added, citing previous company research: “This has led to low retention rates, with only 8 percent of tourists saying they will visit again in the next three years.” The authors however stated that Macau’s expected retention rate is likely to increase to 13 percent.
On the matter of enhanced cooperation between the current operators, the brokerage noted: “The six gaming companies have sufficient reserves to help the government build various infrastructure projects, such as improving the connectivity between the resorts via elevated and air-conditioned walkways.”
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"Most investors believe that Macau is ‘uninvestable’. Our experience has been that when opinions are so unanimously negative, then the risk/reward is skewed to the upside"
Japanese brokerage Nomura