Brokerage Deutsche Bank Securities Inc reckons that, on average, the rate of growth in mass-market gross gaming revenue (GGR) in Macau casinos each year is more than twice the rate of growth in the number of hotel rooms in the city the year before – if the number of hotel rooms grew by at least 4 percent.
The stockbroking arm of Deutsche Bank issued on Thursday a note saying history shows that the relationship between growth in casino GGR and new supply in the casino gaming market in Macau, as gauged by the number of hotel rooms there, is most noticeable in the mass market.
The note said of growth in mass-market GGR: “While mass has been strong for the vast majority of the period since 2011, the influence of new supply is clearly evident. In the years following hotel room supply growth of 4 percent or more, mass GGR has grown, on average, at 2.2 times the rate of the preceding year’s supply increase.”
Taking into account the progress of projects to expand casino resorts in Macau, Deutsche Bank forecasts that the number of hotel rooms in the market will grow by about 1 percent in 2019, by about 11 percent in 2020 and by about 7 percent in 2021.
The memo also notes that a few large-scale projects, such as the Grand Lisboa Palace from casino operator SJM Holdings Ltd, and the expansion of Galaxy Macau from Galaxy Entertainment Group Ltd, “both have slipped with respect to their opening dates”.
“With GGR trends largely stable, with mass-driven or margin-enhancing revenue outpacing the more volatile VIP segment by a wide margin, we believe the current supply forecast is far less intimidating than it has been at any point over the last four years or so,” wrote Deutsche Bank analysts Carlo Santarelli and Steven Pizzella.
They added: “While the hotel capacity outlook accelerates, it’s worth noting that of the about 7,100 rooms expected to come online in 2020/2021, about 73 percent will do so without explicitly noted incremental gaming capacity.”
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"I think for our property [Grand Lisboa Palace], looking at breaking-even and stabilisation, will take… 12 months or so, or less”
Daisy Ho Chiu Fung
Chairman of Macau casino operator SJM Holdings