Nomura turns positive on Macau GGR amid China uptick
Early signs of “green shoots” in the mainland Chinese economy have seen Nomura’s Instinet LLC brokerage revise upwards its estimate for 2019 gross gaming revenue (GGR) in Macau’s casinos. The Nomura finance and banking group now forecasts at least 1-percent growth in GGR – and perhaps growth as great as 4 percent – instead of a 3-percent contraction this year.
“Considering the fourth-quarter and year-to-date GGR, we believe that 2019 growth will settle in a range of 1 percent to 4 percent. One percent is consensus, but 4 percent growth is possible if GGR volumes follow the recovery in key China economic indicators,” analysts Harry Curtis, Daniel Adam and Brian Dobson wrote in Wednesday’s note.
The analysts based their more positive estimates on improving macroeconomic indicators in mainland China – the market understood to be the source of most of Macau’s high-roller gambling income and much of its mass-market gaming revenue.
Last November, in view of fears that the Chinese economy would contract, Nomura forecast that GGR in the VIP market segment would shrink by 10 percent this year, offsetting annual growth of 3 percent or 4 percent that it predicted for the mass market and slot machine market.
The latest note says: “With green shoots now sprouting in China, VIP volumes could be flattish this year.”
The stockbroker assumed an increase of about 1 percent in VIP-market revenue as reported by the casino operators.
Nomura also assumed in its updated assessment that Macau casino GGR in the mass market would grow by about 7 percent in 2019, having estimated previously growth of 4 percent.
The stockbroker envisaged that the number of visitors to Macau would increase year-on-year in 2019, and that the Chinese economy would expand by 6 percent or 6.5 percent during the year, putting money in the pockets of Chinese tourists, some of which they could spend in Macau casinos.
“If Beijing continues to foster credit and liquidity growth through 2019, then GGR growth could approach mid-single digits,” the analysts wrote. “The governing factor might be additional regulatory efforts at controlling currency flight, but, so far, players seem to find creative ways to access capital.”
Estimates revisited
The improved sentiment towards Macau’s gaming sector in the note from Nomura came after a similarly positive revision from Morgan Stanley released on Tuesday.
The stockbroking arm of Morgan Stanley revised its estimate for full-year GGR to growth of 1 percent, rather than a 2-percent contraction, on the perceived strength of revenue growth in the mass-market segment.
Morgan Stanley said in its revised forecast that mass-market casino GGR might grow by 7 percent this year instead of its prior view of 2 percent. “While mass growth has slowed down to single-digit year-on-year growth in the first quarter of 2019, improving visitation could ensure continued mass growth over the medium term,” suggested analysts Praveen Choudhary, Jeremy An and Thomas Allen.
Overall, Macau’s casino GGR in the first two months of this year was 0.5 percent down compared to the corresponding period a year earlier. January’s GGR eased by 5 percent in year-on-year terms, the first such shrinkage in monthly GGR since mid-2016. Last month saw Macau GGR growth of 4.4 percent, year-on-year.
Combined, the official data from the city’s regulator of gambling, the Gaming Inspection and Coordination Bureau, shows a flat start to the year, which exceeded the consensus view of a contraction in 2019.
Morgan Stanley still expects casino GGR in the VIP market in Macau to shrink by 6 percent this year, constricted by the revised ban on smoking in casinos, by competition from casinos in Southeast Asia and by a crackdown on illegal underground banking.
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