Morgan Stanley is “incrementally turning more positive” about gaming in Macau, basing its more optimistic view on expected growth in annual gross gaming revenue (GGR) this year. In a note issued on Tuesday, the stockbroking arm of the investment bank says it now expects casino GGR to grow by 1 percent in 2019, rather than shrink by 2 percent, mainly because it has raised its forecast of growth in revenue in the mass-market segment.
In January, the bank forecast that the combined effects of “tightened liquidity, [the] full smoking ban pressuring VIP and premium mass growth in 2019, and potential decline in earnings before interest, tax, depreciation and amortisation year-on-year growth in the first quarter of 2019” would impact on GGR.
Tuesday’s note said of shares in operators of Macau casinos: “We are incrementally turning more positive – leading macro indicators are suggesting GGR improvement from the second half of 2019. Some concerns – licence issues, slow GGR in the first half of 2019, and mid-cycle valuation – keep us from turning outright bullish.”
Morgan Stanley now thinks casino GGR in Macau’s mass-market segment will grow faster than it previously estimated – by 7 percent instead of 2 percent.
“While mass growth has slowed down to single-digit year-on-year growth in the first quarter of 2019, improving visitation could ensure continued mass growth over the medium term,” suggested analysts Praveen Choudhary, Jeremy An and Thomas Allen. Macau casino GGR in the first two months of 2019 was 0.5 percent less than in the corresponding period a year earlier.”
Morgan Stanley still expects casino GGR in the VIP market in Macau to shrink by 6 percent this year, constricted by the revised ban on smoking in casinos, by competition from casinos in Southeast Asia and by a crackdown on illegal underground banking.
Up to end-2018, VIP rooms were the only places in Macau casinos that had still been allowing smoking at the gaming table. Tableside smoking ended when new rules on smoking in casinos in Macau came into full effect in the new calendar year.
“Risk is also rising, with mid-sized junkets folding and ongoing consolidation at the top,” the note said.
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”China has been strengthening the control over capital flow, and the impact of that has already been reflected [on Macau’s gaming revenue trend]. There should not be any bigger impact from the new… legislation [on the mainland] … on the gaming revenue trend here”
Wilfred Wong Ying Wai
President of Macau casino operator Sands China