Average daily revenue in Macau casinos did not recover significantly in late December even after President Xi Jinping’s visit, suggesting “a weakening fundamental” in the market, says a note from Credit Suisse AG in Hong Kong.
The bank’s analysis was issued following the full-year revenue results for Macau published on Friday by the territory’s government, which showed a 30.4 percent year-on-year drop in casino revenue in December.
Credit Suisse also gave a preview on the likely split of the market between VIP revenue and mass-market revenue during December. That division of the gross is followed closely by investors, because the mass sector tends on a dollar-for-dollar basis to have better profit margins than VIP, albeit on lower volume.
The Credit Suisse assessment is not good news. The institution said that a quickening during December in the pace of mass-market revenue decline – as compared to November’s – would likely be “a negative surprise for the market”.
“We estimate [December] VIP revenue to drop by 37 percent to 40 percent year-on-year (November 2014: -27 percent year-on-year) and mass may drop by 13 percent to 19 percent year-on-year ( November 2014: -6 percent year-on-year). The sharp revenue deceleration in mass market is likely to be a negative surprise to the market and drive another round of de-rating,” wrote Kenneth Fong and Isis Wong.
The official government numbers on the VIP-mass revenue split for the three months to December 31 – expressed on a quarterly rather than monthly basis – won’t be available until later this month.
“We expect the stricter enforcement of transit visa rule and strengthening supervision on the industry called by President Xi during his visit …may continue to weigh on the revenue recovery,” added the Credit Suisse team.
President Xi visited Macau on December 19 and 20, to mark the 15th anniversary of the territory’s return to Chinese administration from that of Portugal. Several analysts had expected his visit to have a negative temporary impact on VIP play, on the basis that mainland Chinese high rollers were likely to remain low profile during that period. During his visit, President Xi also called for the Macau government to “strengthen and improve regulation and supervision over the gaming industry”.
Late last month, it had been reported in some media that Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, would from January 1 be requiring all junket operators to submit documents proving each of their agents does not have a criminal record. In fact, this was a reiteration of the declaration rules that already exist for Macau’s gaming promoters, also known as junkets.
Nonetheless, there is sensitivity among the investment community to any hints – whether of substance or not – of further deterioration in market fundamentals.
When year-on-year revenue growth first started to slow in June, it was the VIP segment that suffered, while the mass-market at that time continued to show robust growth, thus on a net basis easing some of the market wide decline.
But a note in late September from Deutsche Bank AG’s Karen Tang warned that the mass segment had also started to slow, a trend that Credit Suisse – citing unofficial industry returns – believes continued in the fourth quarter.
Grant Govertsen and Felicity Chiang of Union Gaming Research Macau Ltd on Friday said in a note they expected Macau’s first quarter 2015 GGR to decline in the “low-to-mid 20 percent range” judged year-on-year.
“This forecast largely assumes that there is no material change in either mass or VIP trends,” from those already seen, said the research house.
Meanwhile, SJM Holdings Ltd closed out 2014 as Macau’s December market leader by gross gaming revenue, with a share of 23.6 percent, according to industry figures compiled by GGRAsia. SJM Holdings’ tally for December was up approximately 1.0 percentage points from the previous month.
In second spot for December was Galaxy Entertainment Group Ltd with 20.6 percent, followed by Sands China Ltd, which drooped to third, on 20.0 percent.
Melco Crown Entertainment Ltd was ranked fourth by market share in December, 14.9 percent, followed by MGM China Holdings Ltd with 10.4 percent.
Wynn Macau Ltd completed the list, with a market share of 10.1 percent in December. The industry figures add up to 99.6 percent due to rounding.
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Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley