Brokerage Sanford C. Bernstein Ltd has lowered to between 1 percent and 3 percent its forecast of the annual rate of growth in casino gross gaming revenue (GGR) in Macau in June.
The institution also warned in the Monday note that any prolongation of the United States-China trade war could put at risk recovery of Macau’s GGR performance.
The Macau market’s GGR tally for the first five months of 2019 stood at about MOP125.69 billion, a year-on-year contraction of 1.6 percent, according to official data released on June 1. A number of investment analysts has said that depressed demand for VIP gambling is mostly to blame for the lacklustre numbers so far this year.
Bernstein noted on Monday: “Weaker-than-expected macro data for May, along with the recent heightened tension in U.S.-China trade relations however, casts uncertainty over the GGR recovery. If a trade war sustains over an extended period, it will likely pose a headwind to China’s economy and gaming spend from China’s high-net-worth individuals in Macau.”
But the memo further stated: “In the long run, improvements in transportation infrastructure, continued growth of the premium consuming class in China and the opening and ramping up of new casino resorts will support long-term growth in mass[-market play].”
Sanford Bernstein gave its revised June GGR growth estimate in the light of Macau casino GGR in the first 16 days of June, which was about MOP11.8 billion (US$1.46 billion), according to the brokerage’s channel checks.
In the first 16 days of June, GGR flowed in at the rate of about MOP738 million a day, on average, or about 2 percent down on June 2018.
“VIP volume is estimated to be down mid-single digits of percent, with lower-than- normalised hold, and mass GGR is estimated to be down low single digits percent month on month,” the note said, referring to performance this month.
“We continue to voice caution about the volatility surrounding VIP. Significantly shifting hold rates in VIP creates volatility and lack of ability to more accurately forecast the monthly trend,” it says.
“The devil remains largely in the details regarding the breakdown between VIP and mass, and overall market share data (which is not clearly available) and as such the weight of the overall GGR number needs to be taken with a bit of scepticism, as weekly channel checks have proven to be less than accurate, and volatile.”
Nonetheless Bernstein expected that because Macau casinos collected relatively modest amounts of GGR in June and July 2018 compared to the first few months of that year, it will be easier for them to record year-on-year improvement in June and July this time.
“Recall GGR was quite robust in early 2018, until U.S.-China trade tensions heightened beginning last summer. Also, we may see surprise on the upside if VIP rebounds,” the note said.
“One area of potential high-end GGR stabilisation and renewed strength may come from a recovering credit cycle in China, which may support VIP recovery in the second half,” it stated.
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Vitaly Umansky, Tianjiao Yu and Kelsey Zhu
Analysts at Sanford C. Bernstein Ltd