GGRAsia – Macau officials open to pleas on smoking lounges: analysts

Macau officials open to pleas on smoking lounges: analysts

May 05, 2015 Newsdesk Latest News, Macau, Top of the deck

Macau officials remain “open” to representations from local casino operators seeking to retain airport-style enclosed smoking lounges on their mass market gaming floors, said Daiwa Securities Group Inc analysts Jamie Soo and Adrian Chan in a note on Monday, citing comments by the management of Macau casino operator SJM Holdings Ltd.

“While no decisions have been made yet on whether smoking lounges will be prohibited, management highlighted that… government officials [are]… open to listening to every stakeholder on this issue and will examine studies on this matter (retaining smoking lounges within casinos),” stated the Daiwa team, attributing the views to SJM Holdings executives.

According to rule changes enacted in October last year, smoking on casino main floors in Macau is now only allowed in enclosed smoking lounges that do not contain any gaming tables or slot machines. But puffing a cigarette while gambling is currently still allowed in VIP rooms.

Daiwa’s Monday note followed the first quarter results issued by SJM Holdings. The firm saw its profit drop by 47 percent during the opening three months of 2015.

Anthony Wong and Angus Chan of UBS AG said in their note on SJM Holdings the same day: “Regarding smoking ban, company/industry have had two meetings with the government recently, and still feels unsure if smoking [lounges] will be allowed when a full ban is implemented (in our forecast we assume a full ban, including VIP areas, from 1 January 2016, but with smoking lounges allowed).”

If enclosed smoking lounges were retained on Macau mass market floors, it could also lead to a debate about whether they should also be allowed in VIP rooms were any tobacco ban extended to high roller areas.

A ban on VIP room smoking could hurt Macau VIP gaming revenue by as much as 15 percent, suggested a note from Karen Tang at Deutsche Bank AG in February.

All the Macau operators that have so far reported their first quarter numbers have seen deterioration in top line and bottom line.

Macau has seen an exodus since the second half of 2014 in VIP and premium mass players. That has been linked by some analysts to the mainland government’s corruption crackdown, leading some investors to fret that now would be the worst possible time to hit the local industry with further smoking restrictions.

In January, a senior Macau official said the government could have a bill – to ban fully casino smoking – ready before the end of the first half this year.

In February, another official said any such ban was only likely to be implemented in 2016.

The current administration of Chief Executive Fernando Chui Sai On has shown itself receptive to the views of Macau casino workers. Many of the most vocal among such workers appear to want a casino-wide total ban as quickly as possible.

In February, Ambrose So Shu Fai, chief executive of SJM Holdings, had said a casino smoking ban “was not in conflict” with having enclosed smoking lounges on main floors. The same month Lawrence Ho Yau Lung, chairman and chief executive of rival Macau casino operator Melco Crown Entertainment Ltd, also called for the retention of smoking lounges in the city’s casinos.

Jai Alai revamp

In other developments, SJM Holdings is reportedly guiding investment analysts that it hopes to see the reopening of the revamped Casino Jai Alai – near Macau’s main ferry terminal on the city’s peninsula – in a year’s time.

“Permission for construction of Casino Jai Alai has been granted; construction resumed on May 2, 2015, and is expected to be completed in a year’s time, with 130 rooms and 45 tables. The construction capex is expected to be approximately HKD1 billion [US$129 million],” said Daiwa’s Monday note.

SJM Holdings said in its 2014 interim report it expected the renovated Jai Alai building – which included a casino and leisure complex at the time of its closure on February 28, 2013 – would reopen in 2015.

A November 18, 2012 company filing said Casino Jai Alai would be leased by SJM Holdings from Angela Leong On Kei – who is fourth consort of SJM Holdings’ founder Stanley Ho Hung Sun as well as being an executive director of SJM Holdings – for three years from January 2014.

The same filing said that Casino Jai Alai – a venue first opened in the days of the 40-year casino monopoly of Mr Ho – was to be redeveloped with “hotels, restaurants [and] department stores”. That filing also revealed that Ms Leong held a 97.3 percent stake in a company that has the lease for the Jai Alai property.

The November 2012 filing didn’t say how many tables Jai Alai had at that time. The firm’s 2012 annual report stated that as of December 31 that year, SJM’s neighbouring Casino Oceanus at Jai Alai and Casino Jai Alai combined, operated a total of 188 mass market gaming tables, one VIP gaming table and 648 slot machines. The same report described Casino Jai Alai as a “self-promoted” casino operating under the same licence as Casino Oceanus.