Macau casino stocks were the standout underperformers in Hong Kong trading on Thursday, with Wynn Macau Ltd dropping more than 7 percent. Deutsche Bank analysts reduced their growth forecast for Macau casino revenue citing slower growth for mass table revenue and a continued decline in VIP play.
“The market is shocked to see that Macau’s mass revenue growth sharply slowed from 24 percent year-on-year in June to 16 percent year-on-year in July,” Karen Tang, Hong Kong-based analyst at Deutsche Bank, wrote in a research note on Thursday.
“Of the 8 percentage points slowdown, we estimate that 3 percentage points was due to data reclassification by DICJ [Macau’s Gaming Inspection and Coordination Bureau], and 5 percentage points was due to a mix of: premium mass players becoming junket VIPs; transit visa restriction limiting entry by low-end players; and World Cup delaying summer travel,” she added.
Hong Kong’s Hang Seng Index declined 0.8 percent to 24,387.56 points at the close, the lowest in almost two weeks, dragged by gaming shares.
Wynn Macau and Galaxy Entertainment Group Ltd led declines in Macau casino stocks on Thursday. Wynn Macau closed at HKD29.35 (US$3.79), down 7.56 percent, while Galaxy Entertainment was down 6.38 percent to HKD59.40.
Shares of Sands China Ltd and MGM China Holdings Ltd were down 5.76 percent and 6.34 percent respectively. Melco Crown Entertainment Ltd, which will release its second quarter results later on Thursday, declined 4.78 percent to HKD78.65. Shares of SJM Holdings Ltd, the casino operator founded by Stanley Ho Hung Sun, fell 3.37 percent to HKD19.76.
Deutsche Bank analysts lowered third-quarter and full-year revenue forecasts for Macau’s gaming industry this year.
That follows two consecutive months of year-on-year decline in casino gross gaming revenue (GGR).
Wells Fargo Securities LLC also said in a research note that 2014 “is likely to be choppy” for Macau, citing the transit visa changes and China’s anti-corruption campaign.
Deutsche Bank’s Ms Tang said in Thursday’s note that VIP decline moderated to 13 percent year-on-year in July from 17 percent year-on-year in June, “suggesting that junket liquidity situations had stabilised”.
The analyst pointed out that several premium mass focused casinos lost mass-market share in July but gained junket roll/VIP revenue market share. “This may suggest that some premium mass players had gone back to become junket VIPs,” Ms Tang said. The shift however “is negative for margins”, she added.
The high-margin mass sector generated GGR of MOP36.2 billion (US$4.5 billion) in the second quarter of 2014. Revenue from mass-market baccarat increased by 35.3 percent year-on-year in the period. In contrast, VIP play fell by 5.8 percent year-on-year to MOP54.6 billion, according to official data.
Ms Tang reduced her forecast for mass-market revenue growth in the second half of the year to 16 percent from 23 percent, and estimated VIP revenue would fall 7 percent instead of a prior estimate of a 3-percent decline.
Macau’s accumulated total casino gaming revenue for the year to July 31 increased by 10.2 percent to MOP221.5 billion.
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"The Hong Kong protests may hurt Macau gross gaming revenue by about mid-single-digit (i.e., half of maximum visitation exposure), which should fade away gradually as people will find alternative ways to visit Macau”
DS Kim, Jeremy An and Christine Wang
Analysts at brokerage JP Morgan Securities (Asia Pacific) Ltd