Japanese finance house Nomura says it expects Macau casino revenue to fall by 6 percent to 10 percent year-on-year in September if business in the first week of the month is any guide.
Perhaps more worryingly, the bank’s data suggest the retreat for the VIP market could be gathering pace again in September, on track to decline by as much as 24 percent judged year-on-year. That compares with August, when the VIP segment declined by “mid-teens” of percent year-on-year, according to Deutsche Bank’s Karen Tang.
In July, VIP business slipped by about 20 percent from a year earlier, said Grant Govertsen of Union Gaming Research Macau Ltd, with a similar fall in June.
“We estimate September mass revenues could be up about 15 percent to 19 percent year-on-year while VIP revenues could be down about 19 percent to 24 percent year-on-year, with VIP win rate up against an easier comp [comparison],” wrote Nomura analysts Louise Cheung and Harry Curtis on Monday.
“A lack of positive catalysts through year-end (and potentially 1Q 2015, which also lap a tough VIP comp) could keep investors on the sidelines, in our view,” they stated, adding current trends suggest 2014 revenue growth market wide to be only 2 percent to 3 percent, versus an analyst consensus of 3 percent to 6 percent.
“Looking further out, we expect about 7 percent to 8 percent 2015 full year GGR [gross gaming revenue] growth versus consensus range of 6 percent to 13 percent,” the analysts added. Ms Cheung and Mr Curtis said they remain “positive on Macau’s mass fundamentals”, including rising income in mainland China and new capacity in Macau as well as improved transport links to the city.
Nomura’s September forecast is only based on the first seven days of September inclusive for Macau’s casino sector, and on unofficial industry returns. The bank does note also that the lead up to China’s Golden Week holiday – including the October 1 festivities marking the foundation of the People’s Republic of China – is typically one of the slower periods in late summer and early autumn.
If the year-on-year forecast proves correct, it would be the fourth month in a row that GGR had declined judged against year prior periods. That would make it the most sustained retreat since the period between December 2008 and June 2009, shortly after the global financial crisis emerged via the United States.
As in previous months, the culprit of such eventual decline is expected to be weakness in the VIP gambling market. High rollers still account for around 60 percent plus of all Macau gambling revenues even after 10 years of mass market expansion thanks to the creation of Las Vegas-style casino resorts and the widening of mainland China’s individual visa programme boosting mass-market arrivals from the mainland.
There is no analyst consensus however that the problem is purely a demand-side weakness linked to a crackdown on corruption in mainland China. There is also a supply-side issue regarding the availability of visas for Macau-bound gamblers from mainland China, reiterated Credit Suisse AG’s Kenneth Fong on August 29. Whatever the precise reasons, there is a decline in mainland Chinese gamblers spending conspicuously at the city’s gambling tables.
A number of banks have reduced their revenue growth estimates for 2014 as a whole, based on the continuing VIP weakness. Last week, Deutsche Bank in New York also reduced share price targets for Wynn Resorts Ltd (parent of Macau operator Wynn Macau Ltd), Las Vegas Sands Corp (parent of Sands China Ltd) and MGM Resorts International (majority owner of MGM China Holdings Ltd).
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"We forecast Grand Lisboa Palace will have EBITDA of HKD2.0 billion (US$260 million) with 330 tables by 2022, and HKD3.5 billion with 380 tables by 2023"
Credit rating agency Fitch Ratings