The decline in Macau casino gross gaming revenue (GGR) may have reached a bottom, says a note from Fitch Ratings Inc, offering commentary on the market for the second half of 2016. But “a ‘V-shaped’ recovery is unlikely,” according to the credit ratings agency: it forecasts “mid single-digit” growth for GGR market wide in 2017 and 2018.
“Fitch Ratings believes that Macau has found a bottom following a 15-month run of relatively flat sequential gaming revenues, ending with a solid September,” said analysts Alex Bumazhny and Colin Mansfield. According to the two analysts, Macau’s gaming sector is “stabilising”.
Macau’s casino GGR rose 7.4 percent year-on-year in September, to MOP18.40 billion (US$2.30 billion), said on October 1 the local regulator, the Gaming Inspection and Coordination Bureau.
The result marked only the second time in 28 months that Macau’s monthly revenue had not contracted, judged year-on-year. The improvement began in August, when monthly casino GGR expanded by 1.1 percent after 26 straight months of decline.
“Year to date through September, gaming revenues are down 7.5 percent, but the year-over-year comparisons are becoming easier and the market should receive a boost from the openings of Wynn Palace in August and the Parisian [Macao] in September,” added the Fitch analysts, referring respectively to the recently launched US$4.3-billion Cotai property of Wynn Macau Ltd; and the new US$2.7-billion Cotai offering from Sands China Ltd.
Fitch noted that “the market remains susceptible to the macroeconomic and regulatory conditions on mainland China.”
This week in Beijing, senior officials of the Communist Party of China are holding what is termed the sixth plenum of the party, which is expected to include a closed-doors discussion of party rules.
A number of media outlets have reported that any commentary that emerges from the meeting will be closely analysed by the international investment community for any clues as to China’s domestic policy direction, including the status of the country’s ongoing anti-corruption campaign. That drive has been identified by some investment analysts covering the Macau casino market as a factor in the two-year downturn in Macau VIP gambling turnover and VIP gambling revenue.
Fitch noted it expected “single-digit near-term return on investment” for Macau’s six gaming operators regarding their new or recently launched projects, “after accounting for cannibalisation from their own and competitors’ projects”.
“This includes mid single-digit marketwide gaming revenue growth in 2017 and 2018, and the margin benefit from reallocating staff from existing resorts to new resorts,” said Mr Bumazhny and Mr Mansfield. They added they expected Wynn Macau and MGM China Holdings Ltd – which is currently building the US$3.1-billion MGM Cotai – to benefit most, as businesses previously each with a single property only, on Macau peninsula.
“Fitch maintains a positive view on Macau longer term, as we continue to believe that the Asia Pacific region is underpenetrated, at least as far as the mass market is concerned,” stated Fitch.
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"We [estimate] that these illegal [currency exchange] transactions account for somewhere between 50 percent to 60 percent [of Macau's annual gross gaming revenue]”
Managing partner at IGamiX Management and Consulting