Macau is likely to see a “flat to low single-digit” percentage growth in its gross gaming revenue (GGR) for 2019, negatively impacted by the current economic slowdown on mainland China, says Fitch Ratings Inc.
Despite mainland China’s economic deceleration, Fitch Ratings expects Macau to post flat to slightly positive GGR growth in 2019 “due to the assertive fiscal stimuli by [the] mainland government, diffusion in trade tensions with [the] United States and the recently completed transportation infrastructure improvements.”
The latter was a reference to the Hong Kong-Zhuhai-Macau Bridge: a number of investment analysts have recently mentioned that growth of same-day trips to Macau is being stimulated by the opening in October last year of the cross-Pearl River Delta bridge.
The forecasts were part of Fitch Ratings’ “All In: Global Gaming Handbook”, publicised on Monday. In the report’s coverage of the Asia-Pacific region, the ratings agency highlighted the vulnerability of Macau’s gaming business to a slowdown in mainland China’s economy – China being the most significant feeder market for the city.
Fitch Ratings’ 2019 GGR growth estimate for Macau already incorporated a 0.5 percent decline recorded in the first quarter.
Macau’s casino GGR grew by 14 percent year-on-year in 2018, according to the city’s gaming regulator. Last year’s accumulated GGR was about MOP302.85 billion (US$37.57 billion), compared to MOP265.74 billion the previous year.
“We attribute the recent slowdown in Macau’s gaming revenues to negative economic sentiment on the mainland, exacerbated by trade tensions and credit extension slowdown,” Fitch Ratings said in its report. It added: “The [GGR] deceleration is largely tied to the economic slowdown on mainland China, which should disproportionately negatively impact the VIP segment (53 percent of total gaming revenues in fourth-quarter 2018).”
Fitch Ratings however noted that the mainland China government was stepping up spending and tax stimulus. “More recent economic and credit indicators in 2019 are picking up,” it said.
The ratings agency is forecasting mainland China to record gross domestic product growth of 6.1 percent for 2019, a deceleration from 6.6 percent in 2018.
Growth in the Philippines, flat GGR in Singapore
In other markets, Fitch Ratings said it expected “high single-digit GGR growth” in the Philippines, “driven by the ramp-up of the US$2.4 billion Okada Manila, which has been opening in phases since 2017, and the [country’s] continued economic growth.”
The Okada Manila property is owned and operated by Tiger Resort, Leisure and Entertainment Inc, a subsidiary of Japanese gaming conglomerate Universal Entertainment Corp. The casino resort is one of three private-sector casino resorts currently in operation at Entertainment City. The other two are: Solaire Resort and Casino, controlled by Bloomberry Resorts Corp; and City of Dreams Manila, operated by a subsidiary of Asian casino investor Melco Resorts and Entertainment Ltd.
The ratings agency added: “Okada Manila appears not to have a material competitive impact on the other Entertainment City casino resorts… but the older Resorts World Manila continues to lose market share.”
The latter property – opened in 2009 – is located in the Philippine capital Manila, close to the country’s main international air hub, the Ninoy Aquino International Airport. Resorts World Manila is owned and operated by Travellers International Hotel Group Inc, a venture between Philippine conglomerate Alliance Global Group Inc and casino ship operator and gaming resort investor Genting Hong Kong Ltd.
“Long term, competition from Macau and other Asia-Pacific countries will restrain growth [in the Philippines casino market], particularly in the VIP segment, which accounts for about 28 percent of the private casinos’ GGR,” Fitch Ratings added.
Regarding the prospects of the Singapore market – currently a duopoly between Marina Bay Sands run by a unit of Las Vegas Sands Corp, and Resorts World Sentosa operated by Genting Singapore Ltd –, Fitch Ratings noted in the report: “We expect revenues to remain about flat with the weakness stemming from the Chinese slowdown offset by continued strong Singapore visitation trends.”
Elsewhere in Asia Pacific, Fitch Ratings said that ramp-up of the first integrated resort in Incheon in South Korea – the US$1.2 billion Paradise City – had been “underwhelming”, with the resort generating approximately US$18 million in earnings before interest, taxation, depreciation and amortisation in 2018.
Paradise City – launched in April 2017, and which has a casino that is open only to foreigners – is located near Seoul’s main air hub, Incheon International Airport. The casino resort complex is promoted by a venture called Paradise Sega Sammy Co Ltd, a tie up between Japanese conglomerate Sega Sammy Holdings Inc and South Korean gaming firm Paradise Co.
Two other casino resorts – the Inspire by Mohegan Gaming and Entertainment and the US$700-million Caesars Korea – are planned for Incheon.
South Korea has a total of 17 casinos, according to the latest available data from the country’s National Gambling Control Commission. South Korean nationals are only allowed to gamble at Kangwon Land in an upland area of Kangwon province – 150 kilometres (93 miles) from the country’s capital Seoul.
“We believe there is minimal chance of Korea expanding gaming to nationals in the near to medium term,” Fitch Ratings said in its compendium.
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"The protests in Hong Kong may have caused some transport disruption and created a headwind to China visitation into Hong Kong (and onward visitation into Macau), but we believe the impact on GGR from the Hong Kong protests has been more minor"
Vitaly Umansky, Eunice Lee and Kelsey Zhu
Analysts at brokerage Sanford Bernstein