Investors and others should be cautious about relying on too-rapid a comeback of Macau gambling revenues once tourists from greater Guangdong and the rest of mainland China start to return, says casino industry consultant Ben Lee, managing partner of IGamiX Management and Consulting Ltd, in comments to GGRAsia.
Guangdong residents beyond Zhuhai can start applying for Individual Visit Scheme (IVS) exit visas from Wednesday (August 26), while IVS applications for residents of designated cities in the rest of China will restart on September 23. The IVS scheme and tour group visa scheme had been suspended in late January, to prevent the spread of the novel coronavirus linked to Covid-19.
The Macau market’s casino gross gaming revenue (GGR) tally for the first seven months of 2020 stood at MOP35.06 billion (US$4.39 billion), down 79.8 percent from the prior-year period, coinciding with regional travel restrictions linked to Covid-19 countermeasures.
Mr Lee cites several reasons for taking a cautious approach to the Macau business outlook now.
“The mainland authorities will likely be careful in managing the number of permits issued” for tourism visits to Macau, “in order not to swamp” the city, says Mr Lee. Macau had nearly 40-million visitor arrivals in 2019.
He added: “I believe also, that Macau will be extra-cautious in managing the risks of a resurgence in Covid-19 cases that might occur were there a sudden surge of mainland visitors into the SAR [Special Administrative Region].”
Macau has had no reported cases of Covid-19 for months, and no reported deaths from the disease.
In mid-August, an official from Macau’s Health Bureau said at a regular government press conference on the pandemic, that Macau casinos would not necessarily be closed immediately, if new cases of Covid-19 infection were detected in the city.
Local gaming venues had a 15-day pause in February, to prevent the local spread of the sickness.
Mr Lee told GGRAsia that gaming industry recovery would not necessarily be swift, due to some economic factors dating from before the health crisis.
“Even before the pandemic, Macau GGR was already trending down,” he noted. The city’s 2019 GGR fell by 3.4 percent year-on-year, albeit from a high base.
The consultant attributes some of that to fallout from the United States-China trade war, that began in 2018 and gathered momentum in 2019. As Chinese manufacturers started setting up factories in Indochina as a response to U.S. pressure on Chinese exports, said Mr Lee, the Macau junkets followed their clients, and that “was the start of the downward trend in GGR in Macau.”
“When the sell-side analysts talk about Macau recovery, they haven’t I think, fully factored last year’s downward trend; they haven’t factored the more recent crackdown [on cross-border money movement]; factors that have added incremental hurdles to the recovery of the gaming sector in Macau,” said Mr Lee.
Even were there to be a resurgence of Macau GGR, it might not all be good-quality business, suggested the consultant.
“I see the next [Macau casino industry] battleground as credit issuance. The junket operators will need recapitalisation in the short to medium term. And that will probably have to come from the casino operators,” stated Mr Lee.
“More importantly, I see the casino operators competing more aggressively in granting credit to their premium mass players,” he added. “Granting credit to premium-mass players can help increase your top line and preserve your margin [as an operator] because when they play with your money, you don’t have to give them as many comps [free services and other inducements].”
Though he cautioned: “The problem is that say, two years down the track, a significant percentage of that will probably become receivables, and eventually bad debt. We have seen that in the Macau market previously.”
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