The Macau gaming market is likely to be a “casualty” of China’s stock market crash, said a note on Wednesday from Karen Tang of Deutsche Bank AG in Hong Kong. The bank thinks the scale of the recent rally in Macau gaming names is unjustified.
Its analyst says that not only is there the issue of a strong positive correlation between some China-facing equities and Macau VIP gross gaming revenue (GGR), but also some mainland China junket agents, that organise casino gambling trips for Chinese players, have withdrawn cash deposits made with Macau casino junkets – in order to cover the agents’ margin calls in the mainland share market.
“Many junket agents are wealthy mainland Chinese, and many of them have lost much money from the Chinese stock market crash in the past three weeks. In the extreme cases, some even withdrew their deposits with junket operators to cover margin calls in China,” wrote Ms Tang, adding, “we fear that junket liquidity may shrink”.
She noted that Macau gaming stocks had jumped 20 percent since a Macau government announcement about a relaxation – effective from July 1 – on the rules for transit visas used by some mainland visitors to the city.
“We think such a big move is unjustified, especially since China’s stock market slump over the past three weeks will likely hurt VIP and premium mass…,” wrote Ms Tang.
Japanese brokerage Nomura said in a note on Tuesday that many investors it had spoken to were still reluctant to get back into Macau shares.
“While they see limited downside from here, they are still reluctant to buy as they find the sector growth visibility remains weak and want to wait for a clearer GGR growth trend to be formed before jumping back in,” wrote analysts Richard Huang and Stella Xing.
Brokerage Sanford C. Bernstein Ltd in Hong Kong said in a Wednesday note that Typhoon Linfa – a tropical storm that hit Hong Kong and Guangdong last week – probably accounted for why the average daily revenue (ADR) in Macau casinos was MOP567 million (US$71.0 million) last week, compared to MOP579 million in June.
The institution’s analysts Vitaly Umansky, Simon Zhang and Bo Wen, noted: “Assuming ADR of MOP600 million to MOP650 million for the remainder of this month, we estimate July GGR to be MOP18.5 billion to MOP19.4 billion, representing a year-on-year decline of 32 percent to 35 percent.”
David Bain of brokerage Sterne Agee CRT in the U.S., said in a note on Tuesday that his institution was adjusting its 2015 revenue estimates for the Macau market to a 30 percent year-on-year contraction, from its previous assessment of 24 percent. It has also shifted its 2016 growth estimates for Macau to 14 percent year-on-year expansion, from the 19 percent it expected previously.
“Our estimate reductions include a full smoking ban beginning January calendar year 2016 and table allocations of about 250 (about 150 mass, about 100 VIP) for property openings versus our previous assumption for about 400 (about 200 mass, about 200 VIP),” stated Mr Bain, referring to new casino resorts due to open on Cotai this year and in 2016,” said Mr Bain.
Anthony Wong and Angus Chan of UBS Securities Asia Ltd gave some commentary on the Macau smoking ban issue in a note on Wednesday.
“Based on recently reported opinions of the voting members of the Legco [Macau Legislative Assembly] on the smoking bill, we believe that of the 32 voting members, 11 have stated they are in favour of keeping the smoking lounges, nine are in favour of abolishing the lounges, and 12 have not recently given a clear/strong opinion on the matter. Meanwhile Secretary Tam stated the government will aim to push through the current bill, though he also said he is also ‘open’ to hearing feedback, including some opinion that smoking lounges should be kept,” noted the UBS team, referring to Alexis Tam Chon Weng, Macau’s Secretary for Social Affairs and Culture.
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”We expect Okada [Manila] to add US$1.2 billion of GGR by 2019 to the overall market, capturing 32 percent market share”
Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley