GGRAsia – Macau April GGR heads for 37 pct y-o-y fall: analysts

Macau April GGR heads for 37 pct y-o-y fall: analysts

Apr 09, 2015 Newsdesk Latest News, Macau, Top of the deck

A selection of investment analysts are expecting Macau’s April gross gaming revenue (GGR) to decline by between 37 percent and 40 percent year-on-year. They base their assessments on factors that include daily run rates for the first seven days of the month. GGR for March fell by 39 percent.

Tables-only average daily GGR for the first seven days of April reached MOP586 million (US$73.4 million), estimated CIMB Securities Ltd, in its note on Wednesday. It said that was a 9 percent decline on the previous week.

“Macau gaming share prices are likely to underperform due to this set of weekly numbers as despite weak house VIP win rates, daily tables GGR continues to fall on a weekly absolute basis,” said CIMB analysts Michael Ting and Jensen Poon.

Projections based on average daily revenue rates are usually calculated from unofficial industry returns.

“Our sources on the ground have observed slow foot traffic across segments, including retail and food and beverage,” wrote Daiwa Securities Group Inc analysts Jamie Soo and Adrian Chan, referring to business in Macau casinos in the first seven days of April.

Union Gaming Research LLC analysts recommended in their note on Wednesday that investors exercise some caution regarding the conclusions to be drawn from daily run rates on gaming revenue. They declined to offer any views on such numbers.

“We refuse to believe that the outlook for Macau both short- and long-term can be determined by a few weeks of gaming revenue performance, particularly considering the recent volatility in week-to-week numbers,” wrote U.S.-based analysts Christopher Jones and John DeCree, and Macau-based analyst Grant Govertsen.

But they also acknowledged that the recent decline in Macau VIP revenue – linked by a range of investment analysts to factors including China’s anti-corruption crackdown, which has been supported by Macau – was likely to signal a lasting change in the industry.

“We see the elimination of junket rooms and reduction in capacity as a structural change that is not going to reverse. VIP won’t disappear entirely from the market, but it will be a mere shadow of its former self,” wrote the Union Gaming team.

“Overall liquidity is not there today to support a rebound in VIP. While this could change, we believe there is less willingness from investors to support the VIP business as it was performing in 2013 or early 2014,” they added, noting that China’s property market – traditionally a source of ready liquidity for high stakes players – was not yet rebounding and, in some parts of the country, not yet stabilising.

“The anti-graft crackdown seems to be coming to a point in such a way that it’s directed heavily at the VIP business in Macau,” added the Union Gaming analysts.

Investor interest in Macau gaming names remains “extremely low”, said Wells Fargo Securities LLC in a note on Wednesday.

“We also do not get the sense that value investors are sharpening their pencils as multiples remain high (though dividend yields are attractive), and estimates need to be reduced, in our view,” said the team of Cameron McKnight, Rich Cummings and Tiffany Lee.

David Bain, of brokerage Sterne, Agee and Leach Inc said in his note on Wednesday that the institution expected to see a recovery in Macau GGR in the third quarter, with the year-on-year decline moderating to 12 percent; while the fourth quarter would in likelihood return to positive growth in the “mid-teens” of percent.