Macau is likely to record an overall 6 percent compound annual growth rate in casino gross gaming revenue (GGR) in 2017 to 2019 inclusive – with the mass table games segment’s expansion likely outpacing that of the VIP – says a Monday report from Japanese brokerage Nomura.
The institution expects 2017 casino GGR to be the equivalent of US$29.9 billion – up 8 percent year-on-year; moderating to 6 percent expansion or an annual tally of US$31.8 billion in 2018; and with a further easing of the pace in 2019, to 4 percent year-on-year expansion, or US$33.2 billion.
Huang Yiping, a monetary policy committee member of China’s central bank, the People’s Bank of China and also a Peking University professor, told Chinese official news agency Xinhua at the turn of the year that China’s gross domestic product growth target range should be 6 percent to 7 percent for this year, compared with 6.5 percent to 7 percent in 2016.
While investment analysts have stated that the volume of Chinese visitors to Macau is not in itself a good indicator of the city’s casino GGR performance, they note that the gaming services portion of Macau’s economy has major exposure to the underlying economy of China.
In calendar year 2016, close to 28 million – or approximately 90 percent – of Macau’s total tourist visitors came from Greater China, namely mainland China, Hong Kong and Taiwan, according to data released in January by the Statistics and Census Service.
The “timing is ripe to start taking a positive long-term view on Macau gaming,” said Nomura’s Monday note. The institution listed 10 reasons as backing for its opinion, including that the “both tourist volume and mix are improving, with overnight Chinese visitation up 16 percent in fourth quarter 2016”.
Nomura added: “Mass [gross] gaming revenue (GGR) has been on a steady up-trend; on a sector level, there is no cannibalisation thus far, with  quarterly mass [market] GGR and EBITDA [earnings before interest, taxation, depreciation and amortisation] from existing casinos resilient at US$3.0 billion and US$1.4 billion, respectively.” The latter was a reference to the earnings of existing Macau venues at a time of moderating demand for high-stakes casino gambling that has been linked to China’s anti-graft measures; and at a time of growing supply of casino venues.
Brokerage Sanford C. Bernstein Ltd stated however in a Friday note that it expected MGM China Holdings Ltd – the only one of the Macau operators still with a single venue in the market – “to face headwinds on defending its market share in both VIP and mass” until it opens its 1,600-room MGM Cotai property likely later this year.
Market-wide in Macau, Nomura expects the compound annual growth rate (CAGR) of the city’s mass-market table games GGR to be 7 percentage points higher than that for VIP table games in the 2017 to 2019 period; at 9 percent compared to 2 percent for the high roller business. The institution expects slots GGR to record a 10 percent CAGR during the period.
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"VIP growth [in Macau] is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14"
Cameron McKnight and Robert Shore
Analysts at Wells Fargo Securities