The Macau government’s “mid-term” review report of the local casino industry – disclosed on Wednesday – is mostly positive for the city’s six gaming operators, say several investment analysts.
“The interim review highlighted capital committed by concessionaires and help extended to locals. We believe this is positive for gaming licence renewal for all [the gaming operators in Macau],” investment bank Morgan Stanley stated in a Wednesday note.
“The gaming industry was highly regarded for creating positive impact on Macau in terms of expanding the economy, attracting foreign investments, improving social welfare and labour productivity,” analysts Praveen Choudhary, Alex Poon and Thomas Allen wrote.
“License renewal for all six gaming operators is very likely,” the Morgan Stanley analysts forecast, based on the mid-term review findings.
The mid-term review report gave no indications regarding the likelihood or otherwise of Macau’s existing casino firms having their gaming rights refreshed when the current contracts expire on various dates between 2020 and 2022.
“There is no direct relationship between this report and the gaming licence renewal process,” Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac, said during a Wednesday press conference to unveil the mid-term review findings. Mr Leong provided no timetable for the process regarding possible refreshment of Macau’s gaming licences.
“Our initial take [on the report] is that it appears to be quite benign [for the casino operators],” Union Gaming Securities Asia Ltd analyst Grant Govertsen wrote in a Wednesday note.
He added: “Ultimately, we think this interim review report could potentially be used as a foundation document from which concession renewal discussions could begin. This should be viewed positively for the operators considering the report seems to indicate high levels of compliance, and success in ongoing diversification efforts and the promotion of local employees to management positions.”
More headwinds for junkets
In his Wednesday comments, Secretary Leong said that the mid-term review findings would be an important reference for further improvement of gaming regulations as well as helping gaming operators enhance their operations.
Casino firm Sands China Ltd stated in a press release following the disclosure of the mid-term review report that the company “was pleased to hear [the] gaming interim review announcement, and to gain a deeper understanding of the directives, guidelines and policies moving forward for the development of the gaming industry in Macau.”
The findings included in the mid-term review report – commissioned by the Macau government from the University of Macau’s Institute for the Study of Commercial Gaming – were mostly quantitative.
The document featured a large amount of data, including investment and operational indicators relating to each casino operator. The report also had a lot of macroeconomic data on Macau going as far back as the liberalisation of the gaming industry in 2002.
According to the mid-term review, Macau’s six gaming operators “all fulfilled the capital commitment in their contracts”.
Sanford C. Bernstein Ltd in Hong Kong said the casino mid-term review looked “favourably upon all six casino operators” and was “in-line” with the brokerage’s expectations.
One of the only areas in which the language of the mid-term review report took on a tone of criticism was in relation to junket operations. The English-language extract of the mid-term review noted there were still “problematic” issues associated with the junket industry. It mentioned the need for tighter regulation in the sector.
“In our view, further regulating junket promoters is one of the top priorities of Paulo Martins Chan, the current director of the Gaming Inspection and Coordination Bureau [Macau’s casino regulator]… The VIP segment may face further contraction and headwinds in the coming quarters,” Sanford Bernstein analysts Vitaly Umansky, Simon Zhang and Clifford Kurz wrote.
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Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley