Non-gaming “will never be a significant component of Macau industry revenues,” says a new report on the city’s casino sector from brokerage Sanford C. Bernstein Ltd in Hong Kong.
In Macau’s Five-Year Development Plan – a package of policies and initiatives covering the period 2016 to 2020 published earlier this year – the city’s government has stated that non-gaming revenue within Macau’s casino resorts should account on average for at least 9 percent of all revenue generated by Macau operators by 2020. The government estimates the contribution of non-gaming to the casino sector was 6.6 percent in 2014.
In the Macau tourism market as a whole, non-gaming spending rose 17.4 percent year-on-year in the third quarter, to MOP14.64 billion (US$1.83 billion) according to data released on Friday by the city’s Statistics and Census Service.
In the same calendar period, casino gross gaming revenue (GGR) market-wide in Macau totalled MOP55.0 billion as reported by the local regulator, the Gaming Inspection and Coordination Bureau.
Brokerage Sanford Bernstein noted in its Monday report that – regarding recovery of the city’s casino GGR after more than two years of year-on-year retreat – “Macau’s inflection is in full swing”.
The institution predicts 7 percent year-on-year casino GGR growth in the fourth quarter, with growth also in 2017.
“We forecast fourth-quarter GGR of 7 percent year-on-year growth (led by 15 percent year-on-year mass growth) driven by the ramp up of four newly-opened projects (since May 2015) and slowing modest declines in VIP (and VIP could surprise on the upside),” said analysts Vitaly Umansky, Zhen Gong and Yang Xie, in their 54-page report carrying Monday’s date.
They were referring, respectively, to Galaxy Macau Phase 2, plus Broadway, from Galaxy Entertainment Group Ltd which opened in May 2015; Studio City, majority-owned by Melco Crown Entertainment Ltd, which opened in October 2015; Wynn Palace from Wynn Macau Ltd, that launched on August 22 this year; and the Parisian Macao from Sands China Ltd, which made its market debut on September 13.
“The third-quarter [operator] results reaffirmed our view that the sector’s profitability had already troughed and had finally returned to growth,” said Mr Umansky and his colleagues.
“The EBITDA [earnings before interest, taxation, depreciation and amortisation] growth trend will be reinforced going into 2017 as new projects continue to ramp up and operating leverage improves.”
Union Gaming Securities Asia Ltd said, in a November 10 note, that third-quarter operating data reported by Macau’s six casino licensees indicated mass-market table revenue grew 11 percent market wide year-on-year.
“This is important as it shows mass turning the corner,” said Union Gaming.
Sanford Bernstein said it thought that between 2016 and 2020 inclusive, Macau will see a compound annual growth rate (CAGR) in casino GGR of 8 percent; comprised of VIP gaming CAGR of approximately 3 percent, and mass-market CAGR of approximately 11 percent.
“While the sector continues to face some uncertainties, these are largely tied to VIP (and with flow through to the high end of premium mass), while high margin mass continues to gain strength and have catalyst support,” stated Mr Umansky and his colleagues.
Some commentators suggest public policy initiatives in Macau could be factors moderating the growth of the local gambling market.
Brokerage Daiwa Securities Group Inc mentioned that possibility in a note issued on November 15, following the Macau government’s Policy Address for the Fiscal Year 2017, delivered the previous day by the city’s Chief Executive, Fernando Chui Sai On.
Diawa noted: “A closer examination of the underlying document of this year’s policy address does reveal a stronger tone of policy tightening and completely new items on the agenda… that were not present in past policy addresses, specifically: targeting the use of illegal UnionPay devices to withdraw cash; and facilitating active communications with UnionPay and the mainland police…”
That was a reference to China UnionPay Co Ltd, a firm authorised to make cross-border transactions from mainland China to places outside – including Macau – via bank debit or credit cards issued in the mainland.
The Macau authorities had flagged earlier this year that UnionPay card machines at Macau retailers were being upgraded to include technology to scan the official identity card of each shopper from the mainland. Sale and return of high-value goods such as jewellery and watches via UnionPay card in Macau has in the past been used by some gamblers to get round the mainland’s restrictions on export of Chinese currency, according to investment analysts.
Daiwa added in its analysis of the Macau government’s 2017 policy address: “A financial audit of junkets is expected to begin in February 2017, specifically looking at junket deposit and loan records, internal controls and liquidity ratios, and is expected to be completed by December 2017. In first quarter to third quarter 2017, the government plans to develop (in phases) regulatory manuals for gaming operators; and it expects to complete the draft law by 2017 in relation to the entering [of persons into casinos] and employment within casinos; as well as the supply [of] gaming machines and equipment.”
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"Given the opaque nature of the VIP segment (56 percent of gross gaming revenue in first quarter 2017), forecasting Macau GGR with a fair amount of certainty is difficult; therefore, we remain cautious"