Canvassing of multiple Macau casino industry participants has produced no clear picture of where the city’s casino gross gaming revenue (GGR) and visitor numbers are heading, says a detailed report issued on Monday by Macquarie Capital Securities Ltd.
“Over the past two months, we met with over two dozen industry participants and nobody had clear visibility on where GGR would head a month out. Even for gaming operators themselves, visibility can be as low as just one week,” wrote analysts Kai Tan, Maggie Jiang and Jensen Hui.
Given that uncertainty, the Macquarie team chose to focus on data points for the Chinese economy – ones that are well documented – and engaged in what it referred to as a multiple regression analysis in order to try and understand what might happen in the Macau casino market. The brokerage terms the analysis the Macquarie Macau Gaming Index, or ‘MMGI’.
Key variables of the index include: China residential real estate investment growth; China off-balance sheet financing growth; and China import value growth.
“Tourists and the respective ground mass gaming revenue cannot swing the overall GGR much, while VIP and premium mass revenue growth can,” stated Macquarie, adding that the economic indicators it has chosen to study reflect the liquidity of players from the high stakes gambling segments.
Analysis based on the index suggests Macau GGR performance of -30 percent year-on-year in 2015; -11 percent in 2016; and -10 percent in 2017, versus Macquarie’s base case GGR forecasts of -34 percent; +1 percent and +5 percent for those years, the institution said.
The brokerage points out that the index is not its only yardstick for measuring Macau GGR growth.
Referring to what investment analysts have widely regarded as the recent overheating in China share markets relative to Macau’s gambling revenue decline, the Macquarie team stated: “We expect the recent overshoot of Macau GGR decline to reverse in the next couple of months. The [Macau] performance discrepancy since July 2014 seems to coincide with the overheated A-share market during the period; i.e., affluent SME [small- and medium-sized enterprise] owners spent more money investing in the A-share market rather than visiting Macau.”
The analysts added: “We believe the desired GGR recovery is not happening in the fourth quarter 2015, albeit [GGR] is declining at a slower rate of -27 percent year-on-year versus -37 percent year-on-year in the eight months of calendar year 2015.”
The institution forecasts for 2016 and 2017 are likely to be supported by improvement in mass-market gaming revenues.
“Our mass GGR growth forecasts for calendar year 2016 of +10 percent, and calendar year 2017, +8 percent, are driven by new project completions which are likely to attract more tourists, particularly those coming for long-haul stay vacations, as over 20,000 hotel rooms will be completed by calendar year 2019,” wrote the Macquarie team.
Fitch downward revision
Credit rating agency Fitch Ratings Inc stated in a note on Tuesday it had revised downward, by as many as 5 percentage points, its expectations for Macau GGR year-on-year performance in 2015. It now expects GGR to be -33 percent to -34 percent, rather than its previous forecast of -29 percent.
Macau’s gaming revenues are currently down 36.5 percent year-on-year through August.
A team of Fitch analysts led by Alex Bumazhny said, referring to the opening of Galaxy Entertainment Group Ltd’s Galaxy Macau Phase 2 on May 27 and the scheduled opening on October 27 of Studio City, majority-owned by Melco Crown Entertainment Ltd: “Positively, Phase 2 may have helped the market find a bottom, with gaming revenues coming in at around US$2.2 billion or higher since June. Our 2015 forecast assumes that the recent volumes are maintained and increase slightly after Studio City opens in late October.”
The Fitch team added it expected Macau GGR performance in 2016 to be “relatively flat”.
“The positive impact from the increase in capacity related to Studio City, the March 2016 opening of Wynn Palace and the second half 2016 openings of MGM Cotai and the Parisian will be offset by tough year-on-year comparisons through May 2016 and the weaker yuan [Chinese currency] relative to Macau’s pataca,” said Fitch. The rating agency was referring respectively to Wynn Palace, a new Cotai property being developed by Wynn Macau Ltd; the next-door MGM Cotai developed by MGM China Holdings Ltd; and the Parisian Macao, developed by Sands China Ltd.
Fitch additionally said that “the risks [Macau casino] operators face related to the new properties cannibalising the existing properties and table allocations being less generous than what the operators have requested are partially mitigated by the operators’ ability to shed development-related cost as their respective projects open”.
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