Japanese brokerage Nomura is lifting its year-on-year growth estimates for 2017 Macau casino gross gaming revenue (GGR) by half – a hefty four percentage points – to 12 percent, from 8 percent previously.
“Macro improvements and subsided impact of the anti-graft campaign [in mainland China] continue to lift VIP demand,” wrote the institution in a Thursday report, adding that first-quarter VIP GGR was on track to expand by 5 percent quarter-on-quarter, versus Nomura’s earlier estimate of a 5 percent sequential decline.
The improvement in macroeconomic outlook it said – citing Bloomberg data and its own research – included a steep rise in China property prices from a middle-single digit year-on-year contraction in March 2015, to just above 10 percent year-on-year growth in March 2017.
“Strong VIP performance has led us to lift our 2017 full-year VIP and overall GGR growth estimates to 14 percent (from 2 percent) and 12 percent (from 8 percent), respectively,” wrote Nomura.
Investment analysts indicate that China property prices are typically a proxy – on an up to six-month trailing basis – for VIP gambling performance in Macau. This is on the understanding that strong demand for China property can improve liquidity for Chinese high rollers playing in Macau casinos on junket-issued credit.
The institution was also more bullish than the market consensus regarding the outlook for mass gambling.
“We remain confident about the mass market,” Nomura added.
“In first-quarter 2017, we forecast mass GGR increase of 2 percent quarter-on-quarter, trailing behind 5 percent quarter-on-quarter increase in VIP GGR but still representing healthy growth of 12 percent year-on-year,” noted the institution.
Brokerage Daiwa Securities Group Inc said in a Thursday report on Macau that mass-market GGR growth in Macau “may have been neglected” by the investment community.
Citing what it described as “ground checks”, the institution stated: “We believe mass revenue may grow by over 10 percent year-on-year in first quarter 2017, which may be a surprise to the market.”
Analysts Jamie Soo and Adrian Chan added: “Sector-adjusted EBITDA [earnings before interest, taxation, depreciation and amortisation] would grow by over 20 percent year-on-year in first quarter 2017, or mid-single-digit quarter-on-quarter growth”. This was provided the conditions of sequential GGR growth; what the analysts termed “a good hold environment” for the casinos; and strong contribution from the mass-market segment had been maintained during the period.
Pac On, Morpheus
Daiwa also noted that GGR for the new Macau properties on Cotai – a land reclamation area separate from the traditional downtown casino district on Macau peninsula – was likely to reach “an inflection point”. It said this would be thanks to the possible May opening of the much-delayed Pac On ferry terminal – located near the city’s airport on Taipa Island and next door to Cotai.
“With the latest Cotai 2.0 openings, we have already witnessed the beginning of a shift in footfall/GGR from the peninsula to Cotai; we believe the opening of [Pac On] will be the tipping point to catalyse this swing,” stated Daiwa.
In other developments, brokerage Sanford C. Bernstein Ltd said in a Thursday note that Morpheus, the fifth hotel tower for Melco Crown Entertainment Ltd’s City of Dreams resort on Cotai, would target premium mass gaming. That was a reference to a segment of players betting typically thousands of Hong Kong dollars per hand, but for cash, rather than via the credit issued to the VIP segment.
Melco Crown’s chairman Lawrence Ho Yau Lung had mentioned – at a November media briefing about the new US$1-billion facility – that it would have some form of gaming.
“City of Dreams Macau operations will be considerably enhanced in 2018 with the opening of the 780-room Morpheus Tower, a luxury hotel targeting the premium mass segment,” wrote Bernstein analysts Vitaly Umansky, Zhen Gong and Yang Xie.
“This addition to City of Dreams will allow the property to remain competitive in light of newer property openings targeting a similar client base (i.e., MGM Cotai and Wynn Palace),” added the brokerage. It was referring first to MGM China Holdings Ltd’s US$3.35-billion Cotai venue due to launch in the second half of this year, and second to Wynn Macau Ltd’s US$4.4-million Cotai property that opened in August.
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“We see that basically the ‘golden’ periods [for Macau's casino industry] are all concentrated in the second half of this year”
Lei Wai Nong
Macau’s Secretary for Economy and Finance