The era of rapid, double-digit annual growth in gross gaming revenue (GGR) at Macau’s casinos is over – at least for now. In reviews on the state of the industry for the coming year, three brokerages have separately suggested that growth rates will ease as the Chinese economy continues to slow and the United States-China trade war rolls on.
Official figures indicate that Macau casino GGR was US$37.9 billion last year, 14 percent more than in 2017. Macau’s GGR growth rate for December was 16.6 percent in year-on-year terms. The MOP26.47 billion recorded for the month was the third highest monthly tally last year, just trailing data for October and August, at MOP27.33 billion and MOP26.56 billion, respectively.
In its outlook for 2019, the stockbroking arm of investment bank JP Morgan said GGR in the Macau mass-market segment increased by 17 percent last year – accounting for more than half of all GGR – and that GGR in the VIP market segment grew by 11 percent. It said fourth-quarter GGR was the highest quarterly return in more than four years, “despite mounting concerns over downturn”.
JP Morgan forecast that Macau casino GGR this month would be between 4 percent and 6 percent lower than a year ago. It suggested GGR would grow again next month and the month after, but at annual rates below 10 percent. The note written by DS Kim and Sean Zhuang said the brokerage was nonetheless upbeat about the Macau industry and expected in 2020 a return to an annual GGR growth rate in excess of 10 percent.
“We see a substantial amount of (what we see as unnecessary) fears baked into current stock levels, and better-than-feared industry trends and cessation of negative surprises should alleviate pressure on consensus estimates and drive up valuations,” the note said of shares in Macau gaming companies.
Telsey Advisory Group, in its memo issued on Wednesday, stated the market would “face the more difficult comps [comparisons] and see growth slow to less than 10 percent in 2019”.
“Investors will now focus on what lies ahead, with more difficult comps and any update on concession renewals, as they continue to grow closer,” wrote analysts Brian McGill and Alec Cummings, referring latterly to the current six Macau gaming licences, that expire on various dates in either 2020 or 2022. “It also remains to be seen if the weakening Chinese economy will impact the growth rate further in 2019,” the analysts further observed.
The Instinet stockbroking arm of Japanese financial group Nomura, in a note issued on Tuesday, forecast that January’s GGR will grow by up to 5 percent in year-on-year terms. Analysts Harry Curtis, Daniel Adam and Brian Dobson see annual growth in GGR accelerating next month.
“Despite trade war concerns and a tough growth comparison last year, Macau GGR increased (by 14 percent year-on-year), but the stocks underperformed,” the memo stated. “For 2019, we expect much better stock price performance and multiple expansion for those Macau operators with ramping properties.”
Nomura added: “For sentiment to improve: one, VIP needs to stabilise and mass increase over 5 percent; two, progress must be made on concessions; and, three, more free cash should be returned to shareholders.”
In a note issued on Tuesday, Union Gaming Securities Asia Ltd analyst Grant Govertsen said his brokerage saw full-year GGR growth “in the mid-single digits”.
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Spending on purchase of goods, commissions paid and customer rebates in Macau's gaming industry in 2018