It is “highly unlikely” VIP rooms would be allowed smoking lounges if a full ban on casino smoking is approved in Macau, said a note on Monday from brokerage Wells Fargo Securities LLC, quoting local contacts.
“We remain neutral as the market adjusts to a ‘new normal’ of: (1) tighter government oversight, (2) more muted medium term industry revenue growth, and (3) a recovery that is likely to be flatter than prior rebounds,” added investment analyst Cameron McKnight.
In Hong Kong, analysts Anthony Wong and Angus Chan of UBS Securities Asia Ltd noted on Monday following a recent visit to Macau that “operators do not feel the government is worried about the current level of gaming revenue, and some see decisions on smoking lounges to be made in the third quarter.”
UBS said it estimates Macau’s June gross gaming revenue (GGR) will fall by between 32 percent and 37 percent year-on-year. That would equate to between MOP18.4 billion (US$2.3 billion) and MOP17.1 billion per month, and put the local industry in the “red line” zone mentioned by Japanese brokerage Nomura in a note last week.
David Bain of Sterne Agee CRT stated that – including slot performance and based on current June run rates – June’s deterioration could be as high as 39 percent, although the brokerage forecasts the actual decline will be between 33 percent and 38 percent.
Looming over the market – as referred to by Wells Fargo’s Mr McKnight – is the possibility of a full ban on smoking in Macau casinos later this year or early next year.
The Macau casino industry has for many months been lobbying for exceptions regarding smoking in VIP areas. At the moment smoking is allowed at the gaming table in VIP areas. But the operators – that, according to analysts, are being hammered by a collapse in the Chinese high roller market in the wake of the mainland’s anti-corruption campaign and a slowing mainland economy, but without the mass market being able to take up all the slack – have been lobbying the government to allow enclosed smoking lounges within VIP areas. The operators are calling for that even if the Macau authorities slap a blanket ban on tobacco use in the rest of each casino.
The Macau government has previously stated it plans to put forward later this year a bill proposing a full smoking ban inside casinos. When such a bill would be implemented, and precisely what it would contain, has not so far been mentioned in official statements. Local media reports indicate government officials are sticking to their guns regarding an absolute ban.
Positive signs
In the current unremitting gloom for the local casino market, investment analysts and investors have been looking for signs of an upward trend in casino GGR.
There was some hope a positive trend might be on hand when in the second week of June – according to unofficial industry data – the average daily revenue of the city’s casinos rose 19 percent sequentially from the first seven days of the month.
But a number of analysts suggested that higher than normal house luck in the VIP segment might have skewed the second week’s numbers.
“Given VIP luck factor and seasonality, weekly revenue trend could swing and may not reflect the true momentum. Therefore, we don’t suggest reading [into] the short term momentum too much,” wrote Kenneth Fong and Isis Wong of Credit Suisse AG.
“As June is traditionally a quiet season, we expect a more meaningful revenue pick up into summer holiday (July and August), if any,” they added.
Japanese brokerage Nomura said in its note on Tuesday that what it called the “thesis of ‘supply creates demand’” remained unproven. It was referring to recent openings of casinos in the city.
“June’s month-to-date ADR [average daily revenue] (tables only) was HKD511 million [US$65.9 million], 15.1 percent lower than May’s ADR of HKD602 million despite Galaxy’s new opening of [Galaxy Macau] Phase 2,” wrote Richard Huang and Harry Curtis, along with Stella Xing and Kelvin Wong.
Daiwa Securities Group Inc stated in a Monday note that according to unofficial industry numbers, Galaxy Entertainment Group Ltd had first place in market share of GGR in the first two weeks of June, at 25.1 percent, representing a 6.4 percentage point improvement month-to-date.
Vitaly Umansky, Simon Zhang and Bo Wen of brokerage Sanford C. Bernstein Ltd in Hong Kong, saw positive signs from Galaxy Entertainment’s new venues, the HKD19.6-billion Galaxy Macau Phase 2 and Broadway at Galaxy Macau, which opened on May 27.
“As expected, Galaxy gained the most market share on the back of its newly opened Galaxy Macau Phase 2 and Broadway Macau. We believe the new supply has driven incremental visitation and gaming demand to the property with management reporting robust hotel occupancy,” wrote the Sanford Bernstein team.
Analysts Jamie Soo and Adrian Chan of Daiwa noted: “Galaxy’s market share was largely driven by a favourable win rate in the past week. We expect this trend to normalise as the month progresses.”
