GGRAsia – Smoking ban clouds Macau mass revenue in Oct: analysts

Smoking ban clouds Macau mass revenue in Oct: analysts

Nov 06, 2014 Newsdesk Latest News, Macau, Top of the deck

Mass table games revenue in Macau fell 8 percent year-on-year in October, according to unofficial industry returns quoted by a number of investment analysts.

Macau’s total gross gaming revenue (GGR) for October fell 23.2 percent year-on-year, said the city’s casino regulator on Tuesday.

According to publicly available data reviewed by GGRAsia, the October GGR decline is the biggest year-on-year monthly drop since the Macau government started to issue GGR data in its current form in 2005.

The market had widely flagged a likely 21 percent decline in total revenues in October, mostly driven by a falling VIP segment, but had mostly been expecting flat or single-digit growth in mass market.

Several analysts suggested the picture had been clouded by some casino operators moving premium mass players into VIP areas to allow them to continue to smoke. Since October 6, smoking has been banned on casino main floors in the city, but is still allowed in VIP areas.

“Our checks suggest that as October progressed, frequent/intensive high-value [mass market] gamblers may have shifted back into the VIP segment given the smoking regulations,” said a note from Cameron McKnight of Wells Fargo Securities LLC in New York on Tuesday.

He estimated junket roll had declined 29 percent year-on-year in October, and VIP revenue dropped by 31 percent.

Wells Fargo additionally estimated that Macau’s November gaming revenue is trending for a decline in the “high teens year-on-year”.

David Bain of Sterne Agee Group Inc in the U.S. said in a report on Wednesday that October mass table revenue fell 8 percent while VIP table revenue fell 30.8 percent. The brokerage had forecast a high-single digit mass growth and a mid-30 percent VIP table revenue decline.

“Our understanding is that the main variance versus our projection mostly stems from casino operators designating a portion of premium mass tables to VIP,” said Mr Bain.

Worrying signs

Anthony Wong and Angus Chan of UBS AG in Hong Kong said in a note on Wednesday there were “worrying signs of weakness in [the] mass segment”.

A possible factor mentioned by other analysts – movement of some players from premium mass to VIP rooms in order for them to be able to smoke, could “only explain a small portion of the weakness,” they stated.

They wrote: “A combination of existing drags (weak premium mass, visas changes, no capacity additions) and new issues (smoking ban, events in Hong Kong) in October have had a larger than expected impact. We note that operators have recorded large divergences in mass performance ranging from +16 percent at MGM [Macau] to -17 percent at Wynn [Macau], possibly indicating disruptive shifts in player behaviours from the smoking ban.”

Kenneth Fong and Isis Wong of Credit Suisse AG in Hong Kong, concurred with the UBS view on player reclassification.

They wrote: “October mass revenue was down 8 percent, much worse than our expectation. There is a market misconception that the decline was mainly due to the reclassification of premium mass revenue into VIP. However, even adjusted for such, mass revenue was still -6.3 percent. Industry VIP luck was normal, further supporting our view that only a tiny [amount of] mass revenue was classified as VIP.”

Nomura International (Hong Kong) Ltd analysts Louise Cheung and Stella Xing said in a note on Wednesday they expected assessment of October revenue breakdowns “could cause some confusion” because of factors including the shifting of some premium mass players to VIP to enable them to smoke.

The Nomura team wrote: “There continues to be uncertainty over the application of the smoking ban as evidenced by the ongoing confusion over the newly converted City of Dreams smoking area. Smoking was permitted when we visited and we had to show a membership card to enter the enclosed area. Other operators are keenly following the outcome to determine if they can pursue the same strategy.”

That was a reference to Melco Crown Entertainment Ltd’s Cotai property, where last week the government had said smoking would not be permitted in an area that had previously been premium mass but had been converted by the management to a members-only area.

Daiwa Capital Markets said in a note on Wednesday that the sequential softness in mass gaming was “a worrisome trend” and pointed to “a potentially challenging November and December (especially against high bases last year)”.

Most of the Macau junket operators that have stock exchange listings do not make public their monthly operational results. One that does is Nasdaq-listed Iao Kun Group Holding Co Ltd.

It said in a statement on Wednesday that in October its rolling chip volume – one measure of VIP business – fell 27 percent year-on-year to US$1.10 billion, compared to US$1.51 billion a year earlier.