The Macau casino market “appears poised for a long recovery,” while the United States “muddles along with flat revenues,” said a press release from Fitch Ratings Inc, issued on Thursday.
The Fitch release was posted after Macau’s gaming regulator had announced that casino gross gaming revenue (GGR) in the city had risen 14 percent year-on-year in November – the fourth straight instance of such monthly improvements.
In October – the most recent month for which data is available – the Las Vegas Strip recorded casino GGR of US$562.7 million, also up 14 percent on the prior-year period. Investment analysts say the Las Vegas Strip is an outperformer relative to the rest of the U.S., thanks to its strong appeal to international visitors as well as domestic tourists. In October, Macau GGR rose 8.8 percent from the prior-year period.
“Macau gaming, now firmly at the bottom of the cycle, has better long-term prospects given investments in new supply, improvements in mass market indicators and under-penetration of gaming throughout the rest of Asia,” said Alex Bumazhny, senior director, U.S. corporates, as quoted in Fitch’s Thursday release. Several U.S.-based casino firms also have operations in Macau.
“In the U.S. the operating environment for regional casinos is benign at best, but a bit brighter on the [Las Vegas] Strip,” added Mr Bumazhny.
“With several years of major capital expenditure in the rear-view mirror, many U.S. gaming companies will look to optimise their capital structures. However robust growth just is not an available avenue for deleveraging,” stated the analyst.
Fitch forecasts Macau’s gaming revenues will finish 2016 down 4 percent year-on-year, before rebounding to mid-single-digit growth in 2017.
“That assumes the revenue improvements seen recently stick; and then increase slightly when MGM Cotai opens,” added Thursday’s release, referring to the launch of MGM China Holdings Ltd’s new Cotai property, which is currently expected in the second quarter of next year. MGM China is majority-owned by U.S.-based MGM Resorts International.
Fitch’s release said Singapore – which has two casino resorts, Marina Bay Sands from Las Vegas Sands Corp, and Resorts World Sentosa from Genting Singapore Plc – was likely to see casino GGR “stall, on weakness in its VIP segment”.
“Poor returns make the prospects for additional casino licences unlikely,” it added. The exclusivity period for the two existing Singapore casino licences expires in 2017.
Fitch had said in a December 2015 report that Singapore government concerns about the risk of problem gambling among locals could be a factor in any consideration of whether to issue additional permits.
In other developments, brokerage Sanford C. Bernstein Ltd said in a Thursday note it expected Macau’s December casino GGR to expand by 13 percent to 15 percent in year-on-year terms.
It stated Macau’s 14 percent GGR growth in November had been “in line with our previous expectations”.
Chinese-language financial newswires out of Hong Kong reported on Wednesday – quoting a note from analyst Karen Tang of Deutsche Bank AG – that the growth rate for Macau VIP GGR in November was likely to have been 20 percent judged year-on-year.
They also reported that the note stated this type of robust VIP growth rate could be extended into the coming six to 12 months.
Analysts DS Kim and Sean Zhuang of JP Morgan Securities (Asia) Ltd said in a Thursday memo, regarding the likely positive outlook for the Macau VIP segment: “In our view, this is driven by a combination of better [China] macro backdrop (e.g. property price rally, coal/steel price hikes, higher producer price index, etc.), improved player confidence (e.g. less intense [China] anti-graft campaign; better junket liquidity and recent new [Macau casino] openings.”
David Katz and Brian Davis of Telsey Advisory Group LLC said in a Thursday note: “Our impression from our channel checks is that there has been a significant spike in VIP business, but it is not clear whether it is sustainable.”
Brokerages Union Gaming Securities Asia Ltd and Wells Fargo Securities LLC both think December aggregate casino GGR in Macau might achieve another monthly double-digit percentage rise judged year-on-year. Union Gaming predicts 12 percent growth and Wells Fargo 6 percent to 12 percent expansion.
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"After a challenging period, the Macau market is growing again, and its growth rate has been accelerating for three consecutive quarters. Our Macau operation is experiencing strong growth in both our mass gaming and non-gaming segments"
Chairman of gaming operator Las Vegas Sands and subsidiary Sands China