The compound annual growth rate (CAGR) of Macau’s casino gross gaming revenue (GGR) could be 9 percent for the period spanning 2019 to 2023, says brokerage Sanford C. Bernstein Ltd in a report issued on Monday. The upbeat view was notwithstanding current headwinds in the VIP gambling market that it and another brokerage had mentioned in separate memos the same day.
The expected growth in the next few years should be linked with a return to VIP gambling segment expansion in the medium to long term, and continued strength in mass play, suggested Sanford Bernstein.
It forecast that between this year and the end of 2023 Macau’s VIP gaming revenue would experience 7 percent CAGR; while the mass segment could have 10 percent CAGR in the same period, producing the overall 9 percent CAGR figure.
Bernstein analysts said they anticipated a “return of stronger demand” at the high end of the city’s gaming market to feed through to the operating numbers in 2020 and 2021, and be linked to China’s continuing economic rise.
“Over the medium and long term, VIP segment growth should be driven by continued expansion of the high-net-worth individual population in China, along with increase in the penetration of gaming in mainland China,” wrote Vitaly Umansky, Kelsey Zhu and Eunice Lee.
Market-wide, “we forecast VIP gaming revenue to grow at a 7 percent CAGR over 2019E-23E” stated the report. “The impact on EBITDA [earnings before interest, taxation, depreciation and amortisation] from somewhat slower VIP growth” than seen in some years previously “would be minor,” added the authors.
Bernstein estimated Macau gaming industry EBITDA to deliver an approximately 11 percent CAGR over the period 2019 to 2023.
The brokerage forecast mass gaming revenue would be stimulated by a likely increase in visitor numbers and the average spend per visit. An expansion in Macau’s hotel room inventory – some of it from Cotai casino properties – would help, Bernstein noted.
“Overall, including hotels opened by non-concessionaires, we estimate there will be approximately 5,000 additional hotel rooms coming online [into the market] in Macau in 2020 to 2021,” the institution’s analysts wrote.
The 1,900-room Grand Lisboa Palace on Cotai, promoted by SJM Holdings Ltd - due to be ready at the end of next year – and Galaxy Entertainment Group Ltd’s addition of circa 1,400 hotel rooms with its Phase 3 of Galaxy Macau, were two of the schemes mentioned in the report. In August Galaxy Entertainment’s management said the first portion of Galaxy Macau Phase 3 would probably open in late-2020, rather than mid-2020 as had been mentioned previously.
Improved transport network
Sanford Bernstein expressed confidence in the long-term growth potential of China in delivering mass gaming customers – especially as regional transport links improved - because the brokerage deemed the mainland China market was still “underpenetrated” by the casino sector. Macau is the only place in China where casino gambling is legal.
The report mentioned a number of infrastructure positives. They included: the Taipa-Cotai section of Macau’s Light Rapid Transit (LRT) system due to be ready before year end; a spur line linking Macau’s mainland neighbour Hengqin Island to China’s high-speed rail network, possibly in service this year; and the Guangzhou-Foshan-Jiangmen-Zhuhai Intercity Rail Extension.
The latter project – described by Sanford Bernstein as “the most important” of the bunch, will allow direct rail travel from Guangzhou Baiyun International Airport to Hengqin and to Gongbei; the latter the land border crossing between the city of Zhuhai in Guangdong province, and Macau.
The line extension is likely to be launched some time in the next few years. It would reduce the travel time between Guangzhou’s main airport and the Macau boundary from the current two hours to 1.5 hours, said Sanford Bernstein. The report added that the rail extension would also have a link to Zhuhai Jinwan Airport that could shorten to 10 minutes the transit time to Macau from that air hub.
In the report – which looked in detail at the prospects of United States-based casino group Wynn Resorts Ltd and its Macau operation Wynn Macau Ltd – Sanford Bernstein suggested too much investor focus generally had been on the volatile VIP gambling segment, and not enough on the premium mass one. The institution suggested the latter was more representative of China’s underlying growth and the outlook for discretionary spending by Chinese consumers. It estimated that – despite the Wynn brand’s reputation for specialising in VIP play, the VIP gaming segment would contribute only approximately 20 percent of Wynn Macau’s EBITDA in 2019.
“The improvement in infrastructure in and around Macau, growth of the premium consuming class in China, and expansion of surrounding properties as well as Wynn Palace’s Phase 2 (estimated for 2024) should serve as key growth pillars for the company,” the Bernstein analysts remarked.
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Proportion of mass-market GGR in the aggregate casino revenue for 2019 in the Macau market