Macau gaming revenue growth is projected to stagnate judged year-on-year at zero percent for 2014 and to decline by 1 percent in 2015, says a note from financial services firm Fitch Ratings Inc.
Francis Tam Pak Yuen, Macau’s Secretary for Economy and Finance, said at the territory’s Legislative Assembly on Tuesday that the government’s revenue from gaming tax in 2015 would likely be flat judged year-on-year, at MOP115.5 billion (US$14.5 billion). He added that figure would account for approximately 80 percent of total government revenue for 2015.
The government collected MOP110.2 billion in direct tax from gaming in the 10 months to October 31 this year, according to official data released this week. Direct taxes from gaming brought in 83.5 percent of the Macau government’s total revenue in the first 10 months of 2014.
Macau levies an effective tax rate of 39 percent on casino gross gaming revenue (GGR) – 35 percent in direct government tax, and the remainder in a number of levies to pay for a range of community good causes.
Fitch said in a report this week: “Fitch’s forecast reflects the persistent weakness in the VIP business, which seems to be spilling over to the premium mass segment.”
It added: “We expect weakness in Macau to persist through 1H15 until Galaxy Entertainment [Group Ltd] and Melco Crown [Entertainment Ltd] open the Galaxy Macau expansion and Studio City, respectively, and the negative VIP trends are lapped.”
Fitch said that until that point its model indicates “largely flat” sequential growth in Macau casino GGR which would mean 15 to 20 percent year-on-year declines through the first quarter of 2015 and an approximately 5 percent year-on-year decline in the second quarter of next year.
The ratings agency added: “Thereafter, we are modelling sequential 5 percent to 8 percent mass [gaming] growth and 2 percent to 4 percent VIP growth, with the growth ramping toward the back end of the year.”
It includes as rider that the 2015 “may prove overly conservative if VIP bounces back to recent historical averages (around MOP18 billion per month since 2011 compared with about MOP15 billion since June 2014).”
It added however that it thought a bounce back in VIP “unlikely” owing to the reduced number of VIP table positions in the Macau market relative to 2013 and macroeconomic headwinds in mainland China, including declining house prices and tighter credit conditions, plus the corruption crackdown in China.
Fitch also suggested expansion of the Philippines gaming market would likely draw some VIP business away from Macau.
Macau’s Chief Executive Fernando Chui Sai On said on November 11 the government had drafted a “more cautious” budget for 2015 following the slowdown in the territory’s GGR growth.
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”As the Macau gaming revenue structure is now leaning heavily towards the mass business … once the border fully reopens, the recovery from mass should drive the sector to bounce more swiftly”
Vitaly Umansky, Louis Li and Shirley Yang
Analysts at Sanford C. Bernstein