Casino gross gaming revenue (GGR) in Macau during October is likely to register year-on-year growth of between 3 percent and 7 percent say a sample of brokerages, citing unofficial industry data.
Based upon data for October 2015 from the local regulator, the Gaming Inspection and Coordination Bureau, a 3 percent year-on-year improvement in casino GGR for October 2016 would mean a monthly tally of approximately MOP20.66 billion (US$2.59 billion).
Several analysts wrote in Monday notes that the October 2016 performance might have been stronger, were it not for Typhoon Haima, which passed close to Macau on Friday, causing the Typhoon No.8 signal to be raised until 4.30pm, and leading to disruptions until Friday evening on public transport in and out of the city, as well as within it. The travel disturbances spilled into the weekend.
A number of investment analysts had recently commented that with the slowdown in high-end play in Macau during the past two years, the casino gambling market has become more dependent on leisure play at weekends – in the manner of Las Vegas in Nevada in the United States.
“With the typhoon shutting down ferry service to Macau on Friday, while also severely disrupting air travel in the region… We are reminded how important weekends have become for the region,” said analyst Christopher Jones of the Buckingham Research Group Inc in a Monday note.
One factor affecting estimates for monthly GGR growth in the Macau market is that brokerages use different quantitative methods for calculating their numbers: for example, some include slot revenue estimates as well as table revenue in their extrapolation of revenue; while others use only table games revenue.
The brokerages can also vary in their qualitative analysis of Macau industry data. Some factor so-called table reclassification when assessing the relative weighting of the higher margin mass-market segment compared to the lower margin VIP gambling segment.
According to the gaming bureau, casino GGR in Macau’s mass-market segment expanded by 3.9 percent year-on-year in the third quarter of 2016. VIP baccarat casino GGR fell 1.2 percent year-on-year in the three months to September 30, according to the same set of data.
“We reiterate that the devil is in the details regarding the breakdown between VIP and mass… and as such the weight of the overall GGR number needs to be taken with a bit of scepticism,” noted brokerage Sanford C. Bernstein Ltd in its Monday note previewing the October numbers.
Revenue mix
Referring also to the third-quarter industry numbers, the brokerage’s analysts Vitaly Umansky, Zhen Gong and Yang Xie noted: “We make adjustments to the reported VIP and mass table GGR by shifting a portion of VIP revenue into mass in order to account for the distortion caused by the reclassification of smoking-related premium mass and for other reporting shifts by operators. After these adjustments, we estimate that in the third quarter, VIP declined by -7 percent year-on-year to US$3.1 billion, and more importantly, mass table GGR grew by +10.4 percent year-on-year to US$3.4 billion.”
Brokerage Daiwa Securities Group Inc said in a Monday note “we question the sustainability of the [Macau] earnings recovery”.
Analysts Jamie Soo and Adrian Chan added, referring to the launch of new Cotai casino resorts Wynn Palace in August and the Parisian Macao in September: “We expect the third-quarter 2016 outperformance to have been largely driven by: 1) record-high pre-opening expenses incurred but excluded from adjusted EBITDA [earnings before interest, taxation, depreciation and amortisation]; 2) favourable hold; and 3) a short-term lift in VIP liquidity.”
They further stated, referring first to the departure in mid-September of JD Clayton as property president at Melco Crown Entertainment Ltd’s 60-percent owned Studio City; and the resignation in late September of Gamal Abdelaziz as president and executive director of Wynn Macau Ltd: “Other fundamental concerns include: 1) the recent high-profile departures of casino senior management; 2) a sustained structural decline in patron quality; 3) the ongoing price war and its risks to margins; and 4) misplaced hopes for cash flow growth and the sustainability of dividends. Indeed, the market’s earnings expectations for 2017-18 still look far too optimistic to us, at 15 percent to 18 percent above our forecasts (for core EBITDA).”
Japanese brokerage Nomura said in a Monday note: “We remain cautious on Macau casino stocks as we believe improving industry fundamentals are already priced in.”
Nonetheless Telsey Advisory Group LLC analysts David Katz and Brian Davis remarked in a Monday note: “Overall indications, both anecdotal and quantitative, continue to suggest that the Macau market is improving.”
Several senior industry executives have separately mentioned in recent weeks the likelihood that the Macau market was stabilising following two years of decline in casino GGR.
