Most of Macau casino shares fell in Hong Kong on Thursday after Japanese finance house Nomura predicted casino revenue in Macau will decline this year.
The gross gaming revenue (GGR) of the city’s casinos will probably drop 2 percent for full-2014 compared to a market “consensus of -1 percent to +1 percent,” wrote Nomura analysts Louise Cheung and Harry Curtis. They also cut their 2015 growth estimate to -3 percent, citing a “more cautious stance” on VIP revenue.
Gaming analysts expect October to be the fifth month in a row of GGR declines judged against year prior periods. That would make it the most sustained retreat since the period between December 2008 and June 2009, shortly after the global financial crisis emerged. GGR for September fell by 11.7 percent year-on-year, according to official data.
Nomura had said the retreat for the VIP market was gathering pace in September, while other analysts also warned that mass revenue growth was losing steam.
Revenue from VIP baccarat dropped 19.1 percent year-on-year in the third quarter of 2014, to MOP46.77 billion (US$5.9 billion), compared to MOP57.79 billion a year earlier. VIP revenue accounted for 56.4 percent of all GGR for the quarter, the first time it dropped below the 60-percent mark.
Ms Cheung and Mr Curtis said they now expect VIP revenue to drop 13 percent and mass table revenue to grow by 21 percent for full-2014.
The Nomura team also estimates 2015 GGR “to drop [by] 3 percent, which assumes VIP declines 11 percent (implies flat first half and about 2 percent sequential pick up in the second half) and mass table up 10 percent”.
“Changes in our GGR estimates are primarily driven by an even more cautious VIP outlook but we do remain concerned over mass growth as we believe average spend per mass visitor has yet to bottom,” the analysts wrote.
“We expect monthly GGR to show positive growth in mid-2015 on easy comparisons.”
As a result of lower top-line growth, Nomura’s 2014 and 2015 forecast for earnings before interest, taxation, depreciation and amortisation (EBITDA) of Macau-related casino firms was cut by 5 percent and 13 percent on average, respectively. “We expect labour and promotional cost pressures to remain elevated in 2015,” the analysts said.
In a note on Wednesday, Jamie Soo and Adrian Chan of Daiwa Capital Markets said they expect a muted fourth quarter of 2014.
“As we see it, VIP fundamentals continue to be weak while the mass market is unlikely to see material GGR upside from Golden Week tailwinds,” the Daiwa analysts wrote.
The brokerage says new player sign-up for casino rewards clubs is typically a good leading indicator of mass market performance in the months following peak seasons.
“Our conversations with premium mass hosts during the Golden Week just ended indicated a general decline in both headcount and the quality of new player sign-ups, which point to potential mass GGR growth softness for the remainder of 2014,” they wrote.
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”As the Macau gaming revenue structure is now leaning heavily towards the mass business … once the border fully reopens, the recovery from mass should drive the sector to bounce more swiftly”
Vitaly Umansky, Louis Li and Shirley Yang
Analysts at Sanford C. Bernstein