Macau may see a “mid single-digit” percentage growth in its gross gaming revenue (GGR) for 2019, a performance underpinned by expected ramp-up at the most recently opened Cotai properties Morpheus and MGM Cotai, as well as the opening of Grand Lisboa Palace in that year, according to Fitch Ratings Inc.
But “Chinese-related” VIP weakness would continue to affect Macau, Singapore and would spill over into the Las Vegas Strip’s business in Nevada in the United States next year, the ratings agency said.
The forecasts were part of “Fitch Ratings 2019 Outlook: Global Gaming”, publicised on Tuesday. In the report’s coverage of the Asia-Pacific region, the ratings agency highlighted the vulnerability of Macau’s gaming business to a slowdown in mainland China’s economy – China being the most significant feeder market for the city.
Fitch’s forecast for Macau’s GGR 2019 “reflects our long-term positive outlook,” said the institution. “We believe greater China, with a growing middle class, is underpenetrated,” as a market, added the authors.
Likely contributors to 2019 GGR growth included the opening of Grand Lisboa Palace, from Macau operator SJM Holdings Ltd; the ramp-up of MGM Cotai, a property of MGM China Holdings Ltd; and of the Morpheus hotel tower at City of Dreams, one of Melco Resorts and Entertainment Ltd’s venues.
There was also likely to be a positive impact from “the new supporting infrastructure projects such as the bridge to Hong Kong and Zhuhai,” the ratings agency’s analysts Alex Bumazhny, Sophie Coutaux and Kelly Amato wrote. The infrastructure referred to was the 55-kilometre (34-mile) -long Hong Kong-Zhuhai-Macau Bridge, which opened to commercial traffic on October 24.
“Our forecast [for Macau] is tempered by the tougher year-on-year comparisons and the risk of a weakening Chinese economy. Fitch forecasts 6.1 percent 2019 China GDP growth, a slowdown from 6.6 percent forecasted 2018 growth,” the ratings house added.
The slowing of VIP gaming – a segment described by the agency as “more sensitive” to China’s macroeconomic conditions – would continue into 2019 for Macau, and “spill over into” other markets including Singapore and the Las Vegas Strip, the ratings agency stated.
Levo Chan, chief executive officer of major Macau junket firm Tak Chun Group, said earlier this month possibly the best Macau could hope for was that the city’s VIP gambling growth could plateau in 2019.
For Singapore, its GGR has declined by 3 percent year-on-year in the first half of this year – a slowdown from the 14 percent growth in GGR in 2017.
“The recent weakness [in Singapore] is largely driven by the VIP segment, which is slowing across the region and facing increased competition from expansions in the Philippines and other newer markets,” Fitch Ratings wrote.
“We expect [Singapore] VIP weakness to carry into early 2019 and full-year 2019 to be about flat, offset by a stable mass market,” the agency’s analysts added.
Stable markets
Fitch Ratings said it expected the fundamentals for Malaysia’s gaming market – monopolised by gaming operator Genting Bhd – to “remain stable” in 2019, underpinned by a “domestic mass market” focus at the firm’s flagship property Resorts World Genting, near Malaysia’s capital Kuala Lumpur.
“Visitor arrival growth will be driven by new attractions,” the ratings agency wrote. There is a question mark however about the future of the branded “20th Century Fox World Malaysia” theme park at the resort, after it emerged on Monday that Genting Malaysia was suing Walt Disney Co and 21st Century Fox Inc for allegedly reneging on a deal for the attraction.
“However, the proposed revision of casino duties to up to 35 percent of net collections announced recently will likely pressure margins of Malaysia’s sole gaming operator, Genting Berhad (A-/Stable),” the ratings house added.
Genting Bhd said in a filing earlier this month that the firm was “assessing the full implications” of the tax hike policy, and would have “a review of its marketing expenditure and cost structure to mitigate the impact of the tax increases”.
Elsehwere in Asia Pacific, Fitch expected “stable cash generation” from Australia’s gaming operators in 2019. “For Australian operators, resilient underlying domestic demand and a favourable regulatory environment continue to be the main factors supporting our expectation of stable cash and EBITDA [adjusted earnings before interest, taxation, depreciation and amortisation] generation in 2019,” Fitch Ratings said.
The ratings agency said it expects a deceleration in the global gaming growth for 2019. “Fitch is getting more cautious on the gaming sector as the U.S. economy approaches the late part of the expansion cycle, China’s economy slows down and Europe stiffens regulations.” said the institution.
“These headwinds could be exasperated by intensified shareholder friendly and merger and acquisition activity,” Fitch Ratings’ Alex Bumazhny was cited as remarking in the 2019 gaming outlook.
