GGRAsia – China private liquidity outlook favours Macau: Bernstein

China private liquidity outlook favours Macau: Bernstein

Jul 19, 2016 Newsdesk Latest News, Macau, Top of the deck

Total social financing in mainland China during June massively beat market estimates, said a note on Monday from brokerage Sanford C. Bernstein Ltd.

That could have an upside for consumer liquidity in China and thus be of benefit particularly to the high-stakes, credit-based gambling segment in the Macau casino market, added the institution.

Casino gross gaming revenue (GGR) in Macau’s VIP segment fell 15.7 percent year-on-year in the second quarter, according to data released on Monday by the local regulator, the Gaming Inspection and Coordination Bureau. It was the lowest quarterly volume of VIP GGR for six years according to gaming bureau data.

Mass-market GGR also contracted year-on-year in the second quarter, but more modestly, at 1.1 percent.

A number of investment analysts said the quarterly decline in VIP GGR could have been bigger, had it not been for so-called table reclassification, whereby Macau casino operators count some premium mass play as VIP to enable customers to smoke at the casino table.

Liquidity in China’s private finance sector has in the past been seen by investment analysts as a likely indicator of near-term credit availability in the Macau casino gambling market. More recently, analysts have also had to factor political elements in the Macau market picture, including China’s anti-corruption campaign.

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. China’s June figures for such financing were announced on Friday.

“Total credit formation (i.e. total social financing) in June reported RMB1.629 trillion [US$243.1 billion], down by 11 percent year-on-year but beating market expectation by 48 percent. This implies second quarter 2016 total social financing balance grew approximately 13 percent year-on-year, a continuation of stronger growth experienced since the first quarter 2016,” said Sanford Bernstein analysts Vitaly Umansky and Clifford Kurz.

Easing liquidity

They added that growth in China’s M1 – a measurement of money supply normally including coins and notes in circulation and other money equivalents that are easily convertible into cash – saw further acceleration in the second quarter, to 25 percent year-on-year, up from 22 percent year-on-year in the first quarter 2016.

“All of the above continues to point toward easing liquidity in China, which has often played an important role in VIP revenue (and to some extent premium mass as well),” wrote the Sanford Bernstein team.

Analysts at Japanese brokerage Nomura took a more downbeat view on Macau VIP gambling in their Monday note.

“Mass gaming, in our view, is likely to see a seasonal recovery driven by the summer holidays. VIP gaming, however, could see further softness after another incident of illegal deposit taking,” in Macau, stated Nomura.

“The deposit-taker has no involvement in gaming or junket operations, [but] it could still result in tightening of deposit taking and fund-raising regulations [in Macau] which would be negative for junket liquidity and hence VIP gaming revenue,” added Nomura.

It said the latest news regarding alleged theft in Macau of some investor funds for non-gaming investments was against the background of a theft of gambling junket funds at the SJM Holdings Ltd-licensed L’Arc casino in downtown Macau in January 2016, and another theft at junket firm Dore Investment Group Ltd in September 2015.

Carlo Santarelli and Danny Valoy of Deutsche Bank Securities Inc said in their Monday note on the Macau gaming industry: “While the year-on-year declines in the VIP segment have slowed a bit, stability appears fleeting within the VIP segment.” The analysts however noted that mass trends in the Macau market “have been very consistent over the last five quarters”.

David Katz and Brian Davis of Telsey Advisory Group said in their Monday note – referring to impending property openings on Cotai, including that of Wynn Palace from Wynn Macau Ltd on August 22, and the Parisian Macao from Sands China Ltd, probably in mid-September: “We remain focused on significant growth in supply going forward and the demand necessary to support it, which would require positive revenue growth.”