The Macau government expects overall casino gross gaming revenue (GGR) in the city to continue declining – in year-on-year terms – in the second half of 2016. However, the rate of decline is likely to slow, the Office of the Secretary for Economy and Finance stated in a Friday release.
Overall GGR in Macau declined by 8.5 percent year-on-year in June, marking 25 consecutive months of declines, official data show. The result means that for the first half of 2016, casino GGR was MOP107.79 billion (US$13.47 billion), a contraction of 11.4 percent when measured year-on-year.
In its release, the Office of the Secretary for Economy and Finance noted that the decline in casino GGR “is likely to persist for some more time”. The note added that there was a “huge chance” that declines in casino revenue – as measured in year-on-year terms – would continue in the second half of 2016, “but with a continuous contraction regarding the decline rate”.
The statement did not clarify whether the forecast contraction in the rate of casino GGR decline for the second half of 2016 was being adjudged on a sequential basis, i.e. compared with the decline rate recorded in the first half of 2016; or on a year-on-year basis, i.e. with the decline rate measured against the second half of 2015. The year-on-year contraction in the second half of 2015 had been -31.1 percent.
The release noted that Macau casino GGR generated by mass-market gaming during the first six months of 2016 accounted for 53.1 percent of the total; i.e. a 10-percentage point increase in year-on-year terms in the contribution of mass-market play to total casino GGR.
The note added that VIP GGR declined by 17.3 percent in the first half of 2016 in year-on-year terms, while mass GGR went down by 3.6 percent.
Official figures regarding the market revenue split between VIP and mass-market gambling during the second quarter of 2016 are due to be issued later this month by the city’s casino regulator, the Gaming Inspection and Coordination Bureau.
The government release said that the slower decline rate of mass GGR in the first half of 2016 – compared with that of VIP GGR – was a result of the “works by the Macau government to promote the diversification of the gaming sector.”
The local government stated in its 2016 fiscal budget plan that casino GGR for full-year 2016 was likely to be MOP200 billion. That would represent a decline of 13.4 percent compared to the MOP230.84 billion in casino GGR recorded for the whole of 2015.
GGR in the first half of 2016 reached 53.9 percent of the government’s forecast for the full year.
Friday’s announcement by the government added that the opening of two new casino resorts in the city in the second half of 2016 could help attract more tourists to Macau.
Wynn Palace, the new Cotai casino resort developed by Wynn Macau Ltd, is to open on August 22, the firm confirmed in a statement last week. The Parisian Macao, by rival operator Sands China Ltd, is set to open in mid-September.
Weaker than expected recovery: analysts
“GGR recovery [in Macau] has been weaker than we initially expected,” Credit Suisse AG stated in a report issued on Monday.
“We attribute this to several unexpected events, including: China liquidity being slow in improving players’ demand; new regulations (anti-money laundering) targeting VIP segments; and junkets moving business overseas in light of the regulatory overhang. The slower VIP revenue also dragged the premium mass recovery,” wrote analysts Kenneth Fong, Isis Wong and Lok Kan Chan.
Credit Suisse stated it was revising its GGR estimates for full year 2016 for Macau to a decline of 6 percent, versus a prior estimate of an increase of 8 percent.
Wells Fargo Securities LLC said it expected “additional regulation and new supply could weigh on the second half of 2016 results”. Analysts Cameron McKnight, Daniel Adam and Robert J. Shore wrote in a Friday note that, based on current trends, July’s casino GGR would in likelihood decline by between 8 percent and 10 percent in year-on-year terms.
Union Gaming Securities Asia Ltd also estimated casino GGR to continue declining in July in year-on-year terms. “July typically sees a modest sequential increase in GGR relative to June, while the calendar is favorable this year with one extra Saturday and one extra Sunday. This is important given the growing disparity in GGR trends between midweek and weekend days,” stated analyst Grant Govertsen.
He added: “These positive factors are likely to at least be partially offset by some number of delayed trips to Macau as customers choose to wait for the opening of Wynn Palace.”
“June 2016’s new five-year record low average daily revenue further weakens the consensus’ argument for GGR stabilisation/recovery ahead of the new property openings in the second half of 2016,” stated Daiwa Securities Group Inc in a Friday note.
Analysts Jamie Soo, Adrian Chan and Jennifer Wu added: “June’s reported GGR was lacklustre and without substantial indicators arguing for potential improvement in July/August as typical of the summer season. The current demand base does not look encouraging against the new opening of Wynn Palace and the Parisian which will add 13 percent more new hotel rooms to the market (this represents the largest magnitude of incremental new capacity increase to be introduced in the past 30-plus months).”
According to a Friday note from Telsey Advisory Group LLC analysts David Katz and Brian Davis, not all data coming out of Macau is bad. “Company management teams continue to suggest that there is some actual improvement in mass play offset by declines in VIP, which provides for a positive profitability mix shift,” they noted.
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"The demographics of Tokyo, Yokohama, and Osaka (possible Japanese urban gaming resort locations) warrant larger gaming floors [than 15,000 square metres]"
Analyst at investment research firm Morningstar