GGRAsia – Analysts cautious on short-term outlook for Macau

Analysts cautious on short-term outlook for Macau

Apr 02, 2015 Newsdesk Latest News, Macau, Top of the deck

Investment analysts are starting to see some signs of stabilisation in Macau’s gaming industry, but remain cautious about the city’s short-term prospects citing lower volumes in VIP play, with high rollers keeping a low profile amid mainland China’s anti-graft drive.

Macau’s casino gross gaming revenue (GGR) fell 39.4 percent year-on-year in March to approximately MOP21.49 billion (US$2.69 billion), the city’s Gaming Inspection and Coordination Bureau said on Wednesday.

March was the tenth consecutive month of declines in GGR judged against year prior periods and the second-worst monthly decline on record after the February drop.

“Macau gaming revenue growth continues to be impacted by the drop in patronage by higher-spending players from both the VIP and mass gaming side,” Michael Ting and Jensen Poon, analysts at CIMB Securities Ltd, said in a note on Wednesday.

While the trend is likely to continue, they added: “Heading out of the first quarter, we will start to see relatively easier year-on-year comparison bases. Monthly GGR averaged MOP34 billion in the first quarter of 2014 but declined to MOP30 billion in the second quarter of 2014, MOP28 billion in the third quarter of 2014 and MOP25 billion in the fourth quarter.”

Hong Kong-based analysts at Credit Suisse AG, Kenneth Fong and Isis Wong, said the average daily revenue (ADR) in March likely deteriorated from January and February “as a result of further junket consolidation”.

The Credit Suisse team said the mass-market segment was tracking about 25 percent lower at the end of March compared with the prior-year period. But VIP rolling chips volume appeared to track similar to that of January, “suggesting initial signs of stabilisation,” they said, adding that they still estimate March VIP revenue to be down about 48 percent year-on-year.

Mr Fong and Ms Wong said the further deceleration of mass-market revenue “may weigh on the share price”.

But they added: “Given that VIP revenue trends to lead the premium mass segment by [about] 3 months (due to the partial overlapping of players and VIP is an important source of new premium mass players), we believe if VIP stabilises (although it is still too early to confirm), premium mass may follow in the next few months.

March market share

In March, SJM Holdings Ltd appears to have grabbed the lead in terms of market share of GGR. The operator of the casinos at Lisboa and Grand Lisboa hotels had a market share of 23.2 percent last month, according to industry figures compiled by GGRAsia.

Sands China Ltd, which had the top position in February, saw its market share decline to 21.4 percent last month according to the industry data. Galaxy Entertainment Group Ltd, founded by billionaire Lui Che Woo, kept the third post with 20.0 percent of the market.

Melco Crown Entertainment Ltd was fourth in the list, with 14.0 percent of the market share, compared to 11.2 percent of Wynn Macau Ltd. MGM China Holdings Ltd had 10.2 percent of the market in March.

The expected positive seasonal factors towards the end of April due to the Labour Day holiday in China on May 1, are not likely to bring major relief for Macau’s casino industry, with analysts expecting a year-on-year drop of more than 30 percent.

“If March ADR of MOP693 million holds, we expect April and May gaming growth of -33 percent. If year-to-date ADR of MOP720 million holds, April and May gaming growth would be -31 percent year-on-year,” said a note from Cameron McKnight and his colleagues at Wells Fargo Securities LLC.

The team of analysts at CIMB forecast April GGR at MOP20.5 billion, down 35 percent from a year earlier.

“The earliest we expect GGR to turn positive on a year-on-year basis would be in fourth quarter 2015 based on a low base effect, coupled with new gaming capacity,” said Mr Ting and Mr Poon.