Galaxy Entertainment gains Macau market share in June
Macau casino operator Galaxy Entertainment Group Ltd gained the most in terms of market share of the city’s gross gaming revenue (GGR) in June according to industry figures compiled by GGRAsia.
Galaxy Entertainment’s share went up by 3.8 percentage points month-on-month to 22.3 percent, putting it in second place among the city’s six casino operators. June was the first full month of operation for Galaxy Macau Phase 2 and Broadway at Galaxy Macau, with both having opened on May 27.
The Macau leader by GGR share in June according to the industry figures was Sands China Ltd with 22.7 percent, down from 26.5 percent in May.
SJM Holdings Ltd, founded by gaming tycoon Stanley Ho Hung Sun, was in third place in the Macau market with 21.9 percent. Melco Crown Entertainment Ltd was in fourth with 14.1 percent, with MGM China Holdings Ltd in next spot with 10.2 percent. Wynn Macau Ltd had 8.8 percent of market GGR in June.
Market wide, Macau GGR fell 36.2 percent year-on-year in June to approximately MOP17.36 billion (US$2.17 billion). It extended the year-long downturn that started in June 2014, but was the slowest rate of year-on-year decline since January, when the market contracted by 17.4 percent.
Kenneth Fong and Isis Wong at Credit Suisse AG said in a note on Wednesday that they expect the mass revenue trend to have worsened in June.
“June ADR [average daily revenue] was -12 percent month-on-month (vs. historical seasonality -9 percent),” the analysts said, adding that they expect July GGR to fall between 24 percent and 29 percent year-on-year.
Hong Kong-listed shares of Macau casino operators were up in early Thursday morning trading. It coincided with the news that Macau’s June GGR had fallen year-on-year by a smaller percentage than the market and even one senior Macau official had expected. It was also confirmed on Tuesday that the Macau government had eased visa requirements for some mainland visitors using transit visas. The Hong Kong Stock Exchange had been closed on Wednesday for a public holiday.
Wynn Macau Ltd was leading gains among Macau casino operators when the market opened on Thursday, rising 9.38 percent as of 9.15am.
Glass half full?
Investment analysts however seem to be divided regarding the impact of the new developments in Macau.
Anthony Wong and Angus Chan of UBS Securities Asia Ltd said in a note on Wednesday that market consensus downgrades are likely to be “more muted than feared”, even considering the weak second quarter as GGR fell by 12 percent quarter-on-quarter.
“Partially caused by visa tightening, sector GGR dropped from MOP1.14 billion daily at the peak to MOP620 million in second quarter 2015, a drop of 46 percent. Illustratively, assuming 5 percentage points of the 46 percent decline is caused by visa changes, then [about] MOP60 million of daily GGR could gradually come back, +10 percent from second quarter run rate,” said the UBS analysts.
They added: “Further, the government had now signalled an intention to support the industry, further underpinning our medium-term forecasts.”
A report from Morgan Stanley Asia Ltd shows a different view. “We don’t think it’s [the change in transit visa requirements] a sign of relaxing regulation, nor will it help premium mass/VIP revenue to grow,” analysts Praveen Choudhary, Alex Poon and Thomas Allen said in a note on Wednesday.
“First of all, the negative impact on high end visitors was felt in 2014 because they were coming illegally and used to cancel onward journeys. That restriction still remains. Since the average length of stay in Macau is 1.4 days, any extension of stay beyond 5 days may not be material,” said the Morgan Stanley team.
“Secondly … transit visitors have already recovered since April without any corresponding improvement in VIP/premium mass revenue,” they added.
Morgan Stanley believes three other items should be considered as signs of bottoming in Macau, including revenue risk because VIP GGR is likely to decline further in the second half “due to junkets closing down, while full smoking ban will take 2016 revenue down further”.
The institution mentioned risks linked to earnings and what it refers to as “multiple contraction”. It stated Macau stocks “are trading at 13-15x EV/EBITDA [Enterprise Value/Earnings before interest, taxation, depreciation and amortisation] on 2015/16”. “Thus in the event of slower future growth, no support from dividend, and negative earnings revisions, we see multiples declining further,” the Morgan Stanley analysts added.
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