GGRAsia – China macro clouds Macau GGR story: analysts

China macro clouds Macau GGR story: analysts

Jun 20, 2017 Newsdesk Latest News, Macau, Top of the deck

Recent macroeconomic indicators in mainland China could herald a slowing of growth in Macau VIP gambling, say several brokerages.

“A slowdown in liquidity may be a strong leading indicator of a slowdown in VIP and high end premium mass [play in Macau],” stated a Monday note from Sanford C. Bernstein Ltd.

“Macro indicators in China have turned less positive,” said a memo on the Macau gaming market, issued the same day by Japanese brokerage Nomura.

Investment analysts have separately suggested that recent year-on-year growth in Macau casino gross gaming revenue (GGR) had been driven by the typically credit-based VIP gambling segment.

On Monday, Sanford Bernstein analysts Vitaly Umansky, Zhen Gong and Yang Xie cited as a negative to VIP play the fact China’s central bank, the People’s Bank of China had announced that total social financing had in May been RMB1.06 trillion (US$155.2 billion), i.e., 11 percent below market consensus and down 24 percent month-on-month.

Brokerages say such financing is typically a proxy – on an up to six-month trailing basis – for the performance of the Macau VIP gambling segment.

Total social financing in the Chinese context is an economic barometer established by China’s central government. It sums up total fundraising by Chinese non-state entities, including individuals and non-financial corporate organisations.

Nomura said it has observed “strong correlations” between VIP revenue growth in Macau and China’s real estate market.

“To this end, Beijing home prices, which experienced double-digit price increases in recent months, posted a 4-percent sequential decline in May. We are also seeing decelerating trends in other major areas, including Guangzhou,” said the Japanese brokerage.

June ‘peak’ comp

A Sunday note from Deutsche Bank Securities Inc had suggested Macau’s June casino GGR was likely to be the peak of 2017’s year-on-year growth comparisons, at circa 30 percent expansion.

But Cameron McKnight and Robert Shore, analysts at Wells Fargo Securities LLC, stated in a Monday memo regarding China total social financing: “Monthly growth is volatile, so we prefer trailing 12 month credit growth, which did tick up in May to 16 percent growth, from 10 percent growth in April.”

A separate Monday note from Nomura – issued after recent meetings with senior executives from several Macau casino operators and with a Macau academic – stated: “Casino operators that we met with remain unconvinced by the recent VIP improvement, citing that most of the VIP growth went to Wynn [Macau Ltd], which we believe benefited from the return of the David Group, after closing down its Macau operations in January 2015. Casino concessionaires’ cautious attitude towards VIP is supported by Galaxy’s [Entertainment Group Ltd's] recent efforts to reduce VIP table count by 20 percent…”

David Katz, of Telsey Advisory Group LLC, said nonetheless that the likely heady expansion of total Macau casino GGR for June – which his institution currently projects to amount to 33 percent to 34 percent year-on-year – would lead to revision of second-quarter results projections regarding Macau casino operators.

“Consensus estimates will need to move higher ahead of the quarterly earnings reports in mid-July,” he stated.

Analysts DS Kim and Sean Zhuang of JP Morgan Securities (Asia Pacific) Ltd suggested that June “could be another ‘beat month’”.

“Given month to date trends, we now expect June GGR to jump 30 percent to 33 percent year-on-year (implying circa MOP700 million [US$87.1 million] per day run rate). This would be well ahead of our initial expectations of +20 percent to +24 percent and recent trends (+24 percent in May, +16 percent in April),” added JP Morgan in Monday ‘s note.