Macau’s casino gross gaming revenue (GGR) for October beat market consensus and the growth trend is likely to remain “solid” this month, say several investment analysts.
The city’s casino GGR rose 8.8 percent year-on-year in October, to MOP21.82 billion (US$2.73 billion), said on Tuesday the Gaming Inspection and Coordination Bureau. The October result was the best month for the city’s casinos since January 2015, when GGR totalled MOP23.84 billion, according to official data. It was also the third consecutive month of growth, judged year-on-year.
Macau’s October GGR “was clearly above expectations during the back half of the month and also handily beat consensus of around +6 percent,” said Union Gaming Securities Asia Ltd analyst Grant Govertsen in a note on Tuesday.
He added: “Macau GGR growth rate has accelerated sequentially since August and we think is poised to show similar results in November.”
Brokerage JP Morgan Securities (Asia Pacific) Ltd noted that October was the fourth consecutive month in which GGR beat market estimates “with strong average daily revenues of MOP704 million per day, the highest level in 21 months”.
“This was in spite of three seemingly negative events during the month, such as [Chinese] Premier Li Keqiang’s visit [to Macau], Typhoon Haima, and the detention of Australian casino staff in China,” said analyst DS Kim. The latter was a reference to the holding on the mainland – by the authorities there – of people linked to Australian casino operator Crown Resorts Ltd.
Union Gaming’s Mr Govertsen said that when factoring in the negative impacts of Premier Li Keqiang’s visit and Typhoon Haima, October GGR was likely understated by 500 basis points to 600 basis points. “This suggests the underlying growth rate in October was closer to 14-percent+ (the effect of VIP luck-factor notwithstanding),” he added.
JP Morgan’s Mr Kim said that based on checks with junkets, the brokerage believes VIP revenue in the Macau market has continued to improve. “We believe overall VIP luck was within normal levels; this suggests the improvement indeed came from a recovery in volumes/end-demand,” said the analyst.
Brokerage Sanford C. Bernstein Ltd in its Tuesday note said October benefited “from higher than normal VIP hold rate and stronger than expected VIP volumes resulting in VIP GGR growth of 2 percent to 5 percent”. “We estimate mass [revenue] was up in the mid-teens percentage range,” said analysts Vitaly Umansky, Zhen Gong and Yang Xie.
Crown arrests
Several brokerages suggested the Macau market could actually benefit from the detention in mainland China of people linked to Crown Resorts.
Several individuals linked to Crown Resorts were reportedly detained in mainland China a fortnight ago, and 10 more people reportedly linked to junket businesses held on another occasion. Both events were said to be in connection with investigations into alleged illegal gaming-related marketing activities on the mainland.
Australia’s Justice Minister Michael Keenan on Tuesday said he had raised concerns with Chinese counterparts over the four Australians held by the authorities on the mainland. Mr Keenan was unable to give any detail on what charges they could face, reported Australian media.
Commenting on the series of detentions, Sanford Bernstein’s analysts said: “The arrests are likely related to Chinese enforcement action targeting foreign (i.e., not Macau) casinos. We do not see this action as an indication of any increase in anti-Macau sentiment.
“In the long run, these actions may benefit the Macau gaming market by making foreign casino operations less appealing and making marketing operations in China more difficult.”
Australia’s Foreign Affairs Minister, Julie Bishop, had said that the detention of people linked to Crown Resorts could have implications for the global gaming industry. “I am sure every casino operator around the world is watching this case closely,” Ms Bishop told public broadcaster the ABC, in comments on Sunday.
Union Gaming’s Tuesday note suggested that the Crown Resorts arrests were “already seeming to have a knock-on effect of other operators in the same area (Australia/New Zealand) pulling back resources from China”.
“As non-Macau companies shy away from VIP activities in China, albeit perhaps temporarily, this should generally accrue to Macau’s benefit,” said Mr Govertsen.
Union Gaming forecasts Macau’s November GGR to reach approximately MOP18.2 billion, up by nearly 11 percent year-on-year.
JP Morgan said November growth should be in the range of 5 percent to 6 percent year-on-year, followed by a stronger 7 percent to 9 percent growth in December. “This would lead fourth quarter GGR to grow +7 percent year-on-year and +7 percent quarter-on-quarter to US$7.6 billion, which in turn implies full-year GGR to drop ‘only 4 percent’ in 2016 (versus -34 percent in 2015),” said Mr Kim.
