Analysts still wary on Macau despite solid February
Macau’s casino gaming sector shows “little improvement in industry fundamentals”, says Japanese brokerage Nomura in a note issued on Wednesday.
The institution stated that is the case despite the “pleasant surprise” of aggregate Macau casino gross gaming revenue (GGR) in January and February beating its and many other institutions’ forecasts.
The numbers were helped by “the resilient VIP gaming segment and a moderately better than expected mass gaming segment,” wrote Nomura analysts Richard Huang and Stella Xing.
“While we are happy with the improvement in [February’s] GGR run-rate, we can’t help but to notice that there is little improvement in industry fundamentals with the surprise coming mainly from the low-margin VIP business (accounting for approximately 10 percent of industry earnings),” they added.
Official data released on Tuesday show Macau’s February GGR was at near standstill year-on-year in February – a month that included the typically strong trading period of the Chinese New Year holiday.
February’s casino GGR was 0.1 percent down from the same month a year earlier, at approximately MOP19.52 billion (US$2.44 billion).
“February posts the best monthly performance, in terms of year-on-year decline rate, in the last 21 months,” noted analysts Vitaly Umansky and Simon Zhang of brokerage Sanford C. Bernstein Ltd in a Tuesday note.
The result brings the accumulated casino GGR for the first two months of the calendar year to nearly MOP38.20 billion, a decline of 11.8 percent judged year-on-year, according to the Gaming Inspection and Coordination Bureau, also known by its Portuguese acronym DICJ.
After peaking during the Lunar New Year holiday week, it is common for Macau gaming revenues to fall back the following week, and for March also to be weaker.
“If we strip out the effects of the leap year, February’s ADR [average daily revenue] came in at MOP673 million per day (-3.7 percent year-on-year),” wrote Daiwa Securities Group Inc analysts Jamie Soo, Adrian Chan and Jennifer Wu in a Tuesday note.
“Against the implied run rates over the Lunar New Year of greater than MOP800 million per day, this set of numbers suggests that last week’s ADR tapered off to approximately MOP620 million per day…
“If the run rate of this range is indeed maintained through March’s trough season, this would suggest the month’s [March] GGR would once again post a double-digit decline of greater than 10 percent year-on-year,” added the Daiwa team.
Analysts David Katz and Brian Davis of Telsey Advisory Group LLC said on Tuesday: “With the Chinese New Year (February 7 to 13), anecdotal reports suggested that the stronger visitation traffic was more family oriented, which resulted in moderate utilisation among table positions particularly in Cotai.”
Official government data on the composition of play in Macau’s gambling market is only given on a quarterly basis, and then categorised only by type of game, including VIP baccarat, mass-market baccarat and slots, rather than by sub-category such as “premium mass” or “lower roll” VIP, that have varying rates of margin for the house.
Market structure
“The composition of February GGR is unknown,” said Morgan Stanley Asia Ltd analysts Praveen Choudhary and Alex Poon in a note on Tuesday.
They added: “If the recovery is driven by VIP or luck, then it would be less impactful to EBITDA [earnings before interest, taxation, depreciation and amortisation].”
They further noted: “We expect another double digit decline in March GGR of -14 percent year-on-year to MOP18.5 billion.”
Cameron McKnight of Wells Fargo Securities LLC stated in his Tuesday note: “Assuming February revenues were not inflated by the luck factor, we expect March revenue growth of -4 percent to -8 percent year-on-year.”
Grant Govertsen of Union Gaming Securities Asia Ltd said in a Tuesday note: “After what we would consider a solid February, we would expect GGR trends to return to a daily rate closer to MOP600 million, or about MOP18.6 billion in March and MOP18.0 billion in April. This would imply declines of 13 percent and 6 percent, respectively.”
Nomura noted in relation to the February numbers: “Part of the improvement has been priced in with the stocks rallying 27 percent over the past month. Also, with the looming macro trends in China and the declining tourism industry in Hong Kong, which historically has been highly correlated to Macau’s tourism industry, we maintain neutral on the Macau gaming sector.”
Carlo Santarelli of Deutsche Bank Securities Inc noted on Tuesday regarding Macau’s January and February GGR: “We don’t view the result as the sign of a true inflection, but more an indication of sequential stability meeting a favourable holiday-driven comparison.”
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