Union Gaming Securities Asia Ltd said it is revising downward its outlook for Macau’s gaming industry, forecasting a 33 percent decline in gross gaming revenue (GGR) for full year 2015. The brokerage expects VIP business to fall 42 percent year-on-year in 2015 and mass and slot revenues to be down 19 percent and 18 percent, respectively.
That will be “followed by very modest 2 percent growth in 2016 (VIP -8 percent, mass +12 percent, slots +18 percent), which we believe is reflective of the relative strengths of Macau’s primary customer segments in 2016 (VIP: weak, premium mass: stabilising; grind mass: growing),” analyst Grant Govertsen said in a note on Tuesday.
“This is a touch more conservative than current consensus expectations that are calling for 5 percent total revenue growth in 2016,” he added.
Macau’s accumulated casino GGR for the first nine months of 2015 stands at MOP176.02 billion (US$22.1 billion), a fall of 36.2 percent compared to the same period in 2014, according to official data.
Union Gaming – which admitted that it had “grossly underestimated” in previous estimates the effects of policy and how sharp the continued declines in VIP would be – said it now believed the recovery of the Macau gaming industry would be “more policy driven” than it had initially anticipated.
“[The recovery] will likely take longer too as VIP, in our opinion, likely has another near-term leg down, while any supportive measures from Beijing (e.g. relaxations to the Individual Visit Scheme visa policy) will take some time to work through the system,” said Mr Govertsen.
The mass and slots segments however “are in the process of turning a corner,” the analyst said.
He added: “We could start to see sequential growth by the end of the year, which gives us cause for optimism as it relates to finally seeing the greenshoots needed for shares of the Macau gaming operators to start working again – with some working better than others.”
Union Gaming, which also cut estimates for Macau-based casino operators listed on the Hong Kong Stock Exchange, said the continued downturn in Macau’s VIP segment “is already largely anticipated … and is generally reflected in valuation”.
The brokerage lists three distinct VIP market overhangs “that could collectively result in another leg (or legs) down over the near and medium terms”. They include a junket liquidity problem, stricter regulations for junket operators and the likelihood of a full casino smoking ban.
Following the alleged fraud case at Macau junket operator Dore Entertainment Co Ltd, “it is our understanding that junket investors of all stripes are increasingly asking for redemptions,” Mr Govertsen said.
“It started with the mom and pops, but has now likely spread to include some portion of investors who represent a more substantial proportion of junket liquidity: the VIP players themselves,” the analyst said, adding that a junket liquidity crunch “could very well be in the cards for the fourth quarter of 2015”.
The note also stated that the Dore case “exposed a clear lack of rigorous internal controls at junkets”. “It is possible, if not likely, that more strict regulations could be imposed on the junkets that would necessarily lead to certain junkets ceasing operations,” wrote Mr Govertsen.
Also on Tuesday, Union Gaming Research U.S.-based analysts Christopher Jones and John DeCree said they were cutting the price targets for most U.S.-listed gaming companies with operations in Macau. The exception was MGM Resorts International, for which the price target remains unchanged.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China