“Genuinely stronger” demand contributed in August to the second-highest monthly tally in Macau casino gross gaming revenue (GGR) in more than 36 months, said a Sunday note from JP Morgan Securities Asia Pacific Ltd.
Casino gross gaming revenue (GGR) in Macau rose 17.1 percent year-on-year in August, to nearly MOP26.56 billion (US$3.29 billion), according to data from the city’s Gaming Inspection and Coordination Bureau, released on Saturday. It was the highest monthly tally so far this year.
JP Morgan analysts DS Kim and Sean Zhuang suggested in their memo there were signs of solid fundamentals in the Macau gaming sector. A number of other analysts had expressed concerns recently that any uptick in corruption probes in mainland China might dampen demand for play in the Macau market.
“Meaningful acceleration in GGR growth (from +10 percent to 12 percent of May to July) was supported by easy comps,” stated the JP Morgan team, in a reference to easier year-on-year comparisons to August 2017 when Typhoon Hato caused disruption to the city’s gaming operations.
The brokerage’s analysts added: “We also note demand was genuinely stronger, as August printed the second best monthly GGR in over three years (only 0.3 percent lower than October 2017).”
They further said: “Macau GGR growth has been markedly ahead of most other consumer segments in China, namely China retail (+9 percent in July), China passenger car sales (-5 percent in July), and Hong Kong retail (+8 percent in July).”
In July Macau GGR rose 10.3 percent year-on-year, although that was a miss on most analysts’ estimates.
JP Morgan stated, regarding the July number in the wider China consumer context: “This seems very impressive, in our view, underlining solid fundamentals and secular growth prospect of Macau’s gaming industry.”
Weather, public policy
Analyst Grant Govertsen of brokerage Union Gaming Securities Asia Ltd stated in a Saturday note on Macau August GGR, and referring to unfavourable weather in August 2017: “Two big typhoons within one week of each other, made for a very favourable calendar this August and hence nice year-on-year growth: the reality is that the absolute level of GGR this August was the highest of the entire year, and only second to February (benefiting from Chinese New Year) on a GGR per day basis.”
At Deutsche Bank Securities Inc, analysts Carlo Santarelli and Danny Valoy suggested that the public policy background in China was currently looking favourable regarding Macau gaming.
The pair referred to a recent announcement by China’s Ministry of Public Security that certain visa application conditions would be relaxed to make it easier for some mainland residents to apply for a permit to visit Macau.
“Given the solid result and favourable visa revisions in late August, we think sentiment towards Macau is likely to begin to improve as we head into year-end, though we acknowledge macro/trade war concerns linger,” said the Deutsche Bank team, referring latterly to the relationship between China and the United States regarding tariffs on certain goods and services.
Sanford C. Bernstein Ltd reiterated previously-expressed caution about what the headline monthly GGR number means in terms of business performance; particularly in relation to the split between the higher-margin mass segment, and the higher-volume but more politically-contentious and lower-margin VIP segment.
Analysts Vitaly Umansky, Zhen Gong and Kelsey Zhu stated: “The devil remains largely in the details regarding the breakdown between VIP and mass and overall market share data (which is not accurately 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.”
Bernstein and JP Morgan are forecasting Macau September GGR will expand in the range of 13 percent to 15 percent year-on-year.
Morgan Stanley Asia Ltd analysts Praveen Choudhary and Jeremy An said in a Sunday memo that full-year 2018 could see Macau GGR expansion of 17 percent; assuming MOP1 billion GGR in October during the so-called autumn Golden Week which coincides with China’s National Day holiday period.
But they added, referring to a difficult comparison due to robust fourth-quarter GGR growth last year, when VIP baccarat GGR rose by 22 percent: “A key concern is the high base in the fourth quarter, even though September growth should be robust.”
Morgan Stanley added, referring to an economic indicator for money supply within China and to the country’s rate of expansion for gross domestic product: “VIP growth could moderate or decline if leading indicators (like M1, GDP) do not improve.”
(Updated 10.12am, Sept 3)
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”Despite fears around a trade war and China’s economic slowdown, the narrow-moat Macau gaming market’s competitive positioning and demand remain strong”
Analyst at Morningstar Asia