The increase in the number of visitors to Macau in the first days of the Chinese New Year has made the mass casino floors busy, but VIP play seems to remain weak, say investment analysts.
The first day of Chinese New Year was Thursday, February 19. According to data from the city’s Public Security Police, total arrivals to Macau – excluding Macau residents – during the first three days of Chinese New Year were up 3.4 percent year-on-year to 434,549.
The figures, published on the website of the Macao Government Tourist Office, show that mainland Chinese accounted for 70.9 percent of all arrivals during the period, up by 6.9 percent year-on-year. The data however include other arrivals to the city, such as of Macau imported workers and foreign students.
“This is the first time, in our view, that mass and premium mass casino floors have felt busy since October’s Golden Week,” Grant Govertsen and Felicity Chiang, analysts at Union Gaming Macau Research Ltd, wrote in a note on Sunday.
“Not only have casinos felt busy (very few empty tables), but we have noticed a general – although muted – increase in mass and premium mass minimum bets,” they added.
The Union Gaming team said their checks suggest “a material uptick in mass market GGR [gross gaming revenue] on a sequential weekly basis”.
“This means that traditional seasonality trends remain intact despite the ongoing softness in general demand,” added Mr Govertsen and Ms Chiang.
“With mass-market seasonality trends intact, we are assuming that VIP seasonality should also remain intact, meaning that any uptick in VIP play should come during the week after Chinese New Year (i.e. this coming week),” said Union Gaming. “Put together with the mass trends we’re seeing, we think that the last 10 days of February should tell a meaningful GGR story.”
Analysts at Credit Suisse AG believe the “decent” traffic in the first days of the holiday period will not be enough to prevent a sharp drop in casino revenue this month.
“As grind mass is only 20 percent of the total GGR or 35 percent of EBITDA [earnings before interest, taxation, depreciation and amortisation], it is not enough to offset a weaker VIP and premium mass segment,” analysts Kenneth Fong and Isis Wong said in a note on Monday.
“VIP and premium mass are quite weak: This is consistent with our earlier finding that advanced booking for junkets was weak and tight capital and low risk appetite in money extension have hurt demand,” they added.
Analysts have blamed the decline in Macau’s GGR to tighter liquidity conditions for the credit-issuing junkets, a reduction in the number of transit visas available to high rollers and the crackdown on corruption in mainland China. February 2015 also presents difficulties when attempting a year-on-year comparison, since Macau’s gaming revenue grew by 40 percent year-on-year in February 2014, a monthly growth record that calendar year.
“We currently expect February gaming revenue to fall by 45 percent [year-on-year],” said the Credit Suisse analysts, adding that casino revenue last week “was slightly weaker” than the second week of February and that “Chinese New Year revenue has also been disappointing”.
In Monday’s note, the Credit Suisse team said the consolidation among junkets “is likely to continue” after the holiday period and that “only the top junkets with strong balance sheets would stay”. “We expect March may be even weaker as more junkets close,” said Mr Fong and Ms Wong.
