Macau VIP gambling could fall by as much as 29 percent year-on-year in 2016, while mass market gambling could grow by 8 percent in the same period, says a report from Japanese brokerage Nomura.
The Nomura team – unlike some analysts – does not anticipate a price war among Macau’s six operators as they compete for share in the mass segment.
“We do not assign a high probability to a full-on price war, as casino operators have been effectively scaling back table supply (when demand is weak) instead of trying to fill tables by compromising on margins,” said Tuesday’s report from analysts Richard Huang and Stella Xing in Hong Kong, and Harry Curtis and Kelvin Wong in New York.
Under the arithmetic of the Macau government’s gaming table cap, a total of 1,097 tables remain to be shared between the four major Cotai projects yet to open, said a note on November 18 from Union Gaming Securities Asia Ltd.
The big new Cotai developments that opened this year – Galaxy Macau Phase 2 and its sister property Broadway at Galaxy Macau; and Studio City – each received on aggregate the same size of table allocation – 250 new-to-market units.
Higher numbers of new-to-market gaming tables in Macau could be an “incremental negative” for Macau’s casino industry, as it could intensify competition in the sector at a time of relatively weak demand, suggested a note on October 12 from Daiwa Securities Group Inc.
Carlo Santarelli of Deutsche Bank Securities Inc noted in a statistical market overview issued on Monday that while Macau gross gaming revenue (GGR) had fallen by 35.5 percent year-on-year in the first 10 months of 2015, table game supply had risen 2.1 percent by the end of the third quarter, to 5,819 tables, according to Macau government data.
The institution also noted that as of September 30, Macau’s hotel room supply had risen 7.2 percent year-on-year to 30,000 units, while the number of hotel guests in the market had fallen 4 percent year-on-year to approximately 7.7 million, and hotel occupancy had fallen 718 basis points to 79.2 percent. Deutsche Bank quoted data from Macau’s Statistics and Census Service, company reports and proprietary research by the bank in support of the numbers.
Improvement in 2016
Nomura said on Tuesday: “We believe 2016 should be a better year, with more new openings, but the magnitude of mass growth is likely to be moderate, with declining average customer spend and a longer ramp-up period for new projects.”
The brokerage said it expected “low-single-digit” return on invested capital for new Macau projects in the first year of their operation, but that such returns would be “fully ramped” to 15 percent in the third year of operation.
Galaxy Macau and Broadway at Galaxy Macau, opened on May 27, at a combined cost of HKD24.6 billion (US$3.2 billion), according to their developer Galaxy Entertainment Group Ltd. Studio City, 60 percent owned by Melco Crown Entertainment Ltd, cost US$3.2 billion and opened on October 27.
Wynn Palace, from Wynn Macau Ltd, has a price ticket of US$4.1 billion. The parent Wynn Resorts Ltd said in a filing on November 18 that its was putting back the opening date three months, to June 25, citing construction delays. The US$2.7-billion Parisian Macao from Sands China Ltd is on track to open in the second half of 2016, while the HKD24 billion MGM Cotai from MGM China Holdings Ltd, is due to open in the fourth quarter 2016.
Cameron McKnight of Wells Fargo Securities LLC said in a note with Monday’s date that the Macau market was “still in trend decline” with average daily gaming revenues month-to date in November down 14 percent from October’s MOP647 million (US$81.1 million) daily average, versus an 11 percent month-on-month decline on average across the first 10 months of 2015.
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Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley