Deutsche Bank AG says it “highly doubts” whether mainland China government policies in support of Macau will result currently in a sustained uptick in casino revenue for the city.
“Unfortunately, we see Macau’s problem as a structural demand issue which policies cannot fix,” wrote Karen Tang, the bank’s Hong Kong-based analyst covering hotels, leisure and gaming.
Beijing’s senior representative in Macau, Li Gang, said in comments at a public event on January 27 that China would initiate measures to support Macau if it sees a “huge fall” in visitor arrivals to the city in 2016. Mr Li is director of the Central People’s Government Liaison Office in Macau.
In 2015, visitors from mainland China made up 66.5 percent of the annual total for the city according to data recently released by Macau’s Statistics and Census Service. The number of such visitors nonetheless decreased by 4.0 percent year-on-year to 20.41 million.
Several investment analysts have said that potentially more important to the city’s gaming industry than sheer volume of tourists is the structure of the visitor market – including visitors’ propensity to gamble.
The downturn in the high-volume play high-roller market saw casino gross gaming revenue (GGR) from the VIP segment fall 39.9 percent year-on-year in 2015. Macau’s accumulated casino GGR for the full year of 2015 fell 34.3 percent compared to 2014, show official data.
A number of analysts have recently said they forecast some recovery in Macau GGR this year, led by the mass-market segment.
JP Morgan Securities (Asia Pacific) Ltd stated in a report in late January it expected there might this year be some discreet public policy support specifically for Macau gambling, citing a recent, unheralded, easing in transit visa policy as an example.
China’s central authorities have recently made a number of announcements on policies designed to help Macau’s economy, including via the local maritime economy by granting Macau the right to administer 85 square kilometres (32.8 sq miles) of waters surrounding the territory. These announcements have couched such policies in terms of diversifying Macau’s economy and making it a general tourism destination rather than in terms specifically of stimulating demand for gaming.
The Macau government has echoed the aim of repositioning how the city is seen and marketed to the outside world, declaring a policy of making Macau a ‘world centre of tourism and leisure’.
The city’s leaders also have the comfort of knowing they don’t have immediate need for more money from gambling.
Analysts at Morgan Stanley Asia Ltd said in a note in mid-January they saw little pressure for public policy easing in support of Macau’s casino industry, noting that the government’s gaming tax-fuelled surplus would still be “very comfortable” this year.
On January 27, Beijing’s representative Mr Li said, referring to the gaming downturn: “Macau will still encounter some difficulties and challenges as the city has just entered into an adjustment period.”
Ms Tang said in her Monday note that Macau’s “structural problem” was a “deteriorating visitor mix” judged in terms of gaming spend per player.
Referring to an uptick, measured year-on-year, in Macau gaming revenues in the latter part of January, the Deutsche Bank analyst added: “We expect the current Macau sector rally into Chinese New Year (February 8 to 12) to be short-lived, like lasting only four to six weeks.”
Ms Tang said she had meetings on Friday in Macau, including some with Macau government officials. “We came away feeling that the new policies won’t be able to revive GGR as they will likely focus on: (i) diversifying [the] economy away from gaming; (ii) boosting non-Chinese visitors; and (iii) lengthening stay by Chinese visitors (but not increasing the number of Chinese visitors),” she said in Monday’s note.
Brokerage Sanford C. Bernstein Ltd analysts Vitaly Umansky, Simon Zhang and Bo Wen said in a Monday note on Macau: “It remains unclear whether new potential measures will directly benefit Macau’s gaming and tourism industry (e.g. more IVS [individual visit scheme visa] cities, or greater frequency of visits allowed).”
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"The Hong Kong protests may hurt Macau gross gaming revenue by about mid-single-digit (i.e., half of maximum visitation exposure), which should fade away gradually as people will find alternative ways to visit Macau”
DS Kim, Jeremy An and Christine Wang
Analysts at brokerage JP Morgan Securities (Asia Pacific) Ltd