The Macau casino market is likely to see more junket closures after Chinese New Year, said a note from Credit Suisse AG on Monday.
“The disappointing CNY revenue ahead and the potential junkets closure post-CNY (which in turn drag the VIP revenue as working capital pool may shrink) are potential negative catalysts ahead,” stated analysts Kenneth Fong and Isis Wong.
The Credit Suisse team said that for a clearer picture of year-on-year gross gaming revenue (GGR) trend for the Chinese New Year period it is better to analyse the combined January and February revenue tallies. That is because of the movable nature of the Chinese New Year, which depends on the lunar calendar. In 2014 Chinese New Year was on January 31. This year it is on February 19.
“Combining January and Febuary GGR together to observe the real underlying trend factoring in the timing shift of Chinese New Year Holiday, we estimate the GGR may drop [about] 31 percent year-on-year, worse than December 2014’s drop of 30 percent year-on-year: suggesting limited sequential pick up in fundamental,” said the Credit Suisse team.
On January 31, David Group – said by Japanese finance house Daiwa Securities Group Inc to be the fifth largest junket operator in Macau by chip roll up to that point – closed three out of seven of its VIP rooms in Macau. On January 21, Gold Moon Group, a smaller junket firm, told GGRAsia it had closed a 16-table VIP room it ran at Sands China Ltd’s Sands Cotai Central resort.
Referring to the stock prices of Macau casino names, the Credit Suisse team stated on Monday: “We see 15 percent lower than the current level as better entry point.”
Analysts led by Cameron McKnight at Wells Fargo Securities LLC, noted that recovery in the Macau market “is likely to be flatter than reflected in valuations”.
Anthony Wong and Angus Chan of UBS Securities Asia Ltd, gave in their note on Monday some colour on the Macau market in the run up to the Chinese New Year holiday. There is typically a lull in gaming spend in Macau in the weeks before the festival, followed by a surge during the actual event. That’s also likely to happen this year, said the UBS analysts.
“By segment, we believe quarter to date mass trends have been stable compared to fourth quarter average levels, and have picked up slightly from the trough in December. However junket VIP volumes have continued to weaken from the low base recorded in the fourth quarter,” they added.
VIP revenue in Macau slipped 29 percent year-on-year in the fourth quarter 2014.
“Our current full year 2015E forecast of -11 percent in VIP revenue and +4 percent in mass revenue is predicated on sequential stabilisation in demand of VIP/mass in Q2/Q1 respectively,” added Mr Wong and Mr Chan.
But David Bain of U.S.-based brokerage Sterne Agee struck a more upbeat note on Macau’s gambling business for Chinese New Year.
“Our junket contacts remain cautiously optimistic for Chinese New Year play (though all have noted it is too early to have a good idea of results) and mass visitation should continue to show steady increases year-over-year driven by a higher volume of lower quality players,” said Mr Bain.
“Our February GGR growth forecast is for -34 percent to -40 percent year-on-year, in line with recent consensus. February should mark the low-growth month of calendar year 2015. Many ‘long’ investors look forward to its passing,” added the Sterne Agee analyst.
(Updated at 6.15pm)
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Paulo Martins Chan
Director of Macau's Gaming Inspection and Coordination Bureau