The year 2015 is likely to be “choppy” for the Macau and U.S. gaming sectors, says Fitch Ratings Inc, mentioning “tough Macau comparisons in the first half” and “supplier merger integration costs” among casino technology businesses, among other factors.
In its latest report on those two gaming markets, released on Thursday, the ratings agency remains bullish on Macau – in the long term.
“While recent operating headwinds in Macau are concerning, the long-term fundamentals for the higher-margin, lower-volatility mass business remain intact,” Fitch said.
It added: “Macau and the Greater China market remain under-penetrated and we expect gaming revenue growth will be driven by new supply and infrastructure development. Slower but still solid gross domestic product growth in China (6.8 percent in 2015 and 6.5 percent for 2016) will continue to anchor mass-market demand.”
On the other side of the Pacific Ocean, “heightened credit risks for the U.S. gaming sector remain and the industry is looking less palatable,” according to Fitch.
“We continue to hold that [U.S.] regional gaming is in a slow secular decline. However, in 2015 new competitive openings will be benign, the economic picture is brighter and comparisons to 2014 should be easy, providing some reprieve.”
Analysing the supplier subsector, the ratings agency pointed out “suppliers’ leverage profiles are entering uncharted territory following the recent consolidation.”
It added: “Following the most recent round of mergers and acquisitions, the supplier subsector carries an uncomfortable amount of debt.”
Fitch admitted there are “notable benefits” for suppliers accruing from the mergers, including “cost synergies and increased diversification”, but “the subsector’s ability to take on large amounts of debt is hindered by its already significant fixed costs,” including recurring operating investments and research and development spending.
The ratings agency however said that suppliers could expect some “bright spots” in terms of sales and revenue, including the Las Vegas Strip and Macau, “despite the latter’s recent weakness”.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China