“Mounting uncertainty” in Macau’s VIP gaming sector and “nuisances” related to visa arrangements for mainland tourists could see Macau’s casino gross gaming revenue (GGR) return to “normal” levels – i.e., pre-Covid-19 crisis – only in 2022, says JP Morgan Securities (Asia Pacific) Ltd.
Casino GGR might reach MOP292.1 billion (US$36.6 billion) in full-year 2022, compared to MOP291.2 billion achieved in full-year 2019, before the health crisis took hold, said the institution in a Wednesday note.
Starting from August 26 as part of travel-easing measures following the initial impact of Covid-19, eligible residents from the neighbouring mainland province of Guangdong have been allowed to apply for an exit visa for tourist trips to Macau, either as part of a tour group or under China’s Individual Visit Scheme (IVS) programme. The measure was extended to residents from other mainland regions from September 23.
JP Morgan said however that these measures had failed to “unlock pent-up demand” for travelling outside of mainland China. Demand was “surprisingly weak” in September with an 85 percent fall in visitor arrivals and GGR also declining by 90 percent year-on-year, said JP Morgan analysts DS Kim, Derek Choi and Jeremy An.
Visitor arrivals to Macau during the first seven days of the autumn Golden Week holiday period were also down by 85.7 percent from the same period in 2019, according to official data.
JP Morgan acknowledged that a “stigma” remains among mainland Chinese travelling outside that prevents them from feeling safe about traveling and gambling in Macau.
The institution added that obtaining a visa to Macau has become “much more inconvenient,” requiring up to 10 working days, multiple visits and a Covid-19 test only valid for seven days – versus the issuance of visas via self-service kiosks that were previously available.
“We were overly hopeful on the prospect of pent-up demand, which we thought would outweigh the nuisances related to travel arrangement to Macau and stricter capital control,” stated the JP Morgan team.
The analysts added: “A broadening clampdown on illegal/overseas gambling in China is creating jitters among agents/players at unprecedented levels, in turn throttling any VIP/high-end demand recovery (which, by the way, was touted and supposed to lead the initial rebound).”
In the VIP sector a “broadening clampdown” on illegal and overseas gambling has seen junkets “and even some big players” questioned and investigated in the mainland, and their accounts frozen, wrote the JP Morgan team.
The brokerage also said that Macau’s VIP segment “remains very weak,” with business volumes in the past two months “showing little if any improvements” from the second quarter.
JP Morgan attributed the lacklustre performance in the sector to a number of factors, including: a large-scale clampdown on overseas/illegal gambling in mainland China; a “higher than usual” scrutiny on capital outflow; junkets tightening the grip on capital; and the travel restrictions between Hong Kong and Macau.
The Macau gaming market could see further improvements if travel restrictions between Hong Kong and Macau were eased or if the IVS processing kiosks in mainland China were back online, suggested JP Morgan.
“We think Hong Kong’s importance lies in its position as an avenue for capital flow, where a sizable portion of liquidity goes through Hong Kong into Macau,” said the analysts.
There is however limited prospect of Hong Kong visitors flocking to Macau in the short run, as a 14-day quarantine is still required for anyone arriving via the neighbouring city. People going from Macau to Hong Kong are also required to undergo a 14-day quarantine, a requirement that was extended last week by the Hong Kong government to December 31.
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"We [estimate] that these illegal [currency exchange] transactions account for somewhere between 50 percent to 60 percent [of Macau's annual gross gaming revenue]”
Managing partner at IGamiX Management and Consulting