Trade war weighs despite Macau May GGR growth: analysts
Ongoing investor concerns about the United States-China trade war were likely to be a barrier to fresh impetus regarding the price of Macau gaming stocks, despite the city’s monthly gross gaming revenue (GGR) returning to growth in May after two consecutive months of contraction. That is according to several brokerages.
But a number also suggested that robust growth in mass-market play had been a positive despite what they said – citing industry data – was a year-on-year decline during May in VIP GGR. The official split between mass and VIP GGR is only issued on a quarterly basis by the local regulator.
Casino GGR in Macau rose by 1.8 percent year-on-year in May, to approximately MOP25.95 billion (US$3.21 billion), according to data released on Saturday by the city’s regulator, the Gaming Inspection and Coordination Bureau.
“In this macro-driven environment for gaming stocks, it’s challenging to believe the result represents a distinct catalyst for shares. Nevertheless, we view the bounce back in May favourably,” said Carlo Santarelli and Steven Pizzella, analysts at Deutsche Bank Securities Inc, in a Sunday note.
For 2020 as a whole, the institution is maintaining its previous forecast of 2.8 percent GGR growth in Macau. Deutsche Bank however reduced slightly its Macau full-2019 GGR forecast to 1.0 percent from 1.1 percent, it said in the Sunday note.
The May result was a “modest positive surprise” said Harry Curtis, Daniel Adam and Brian Dobson at brokerage Nomura, noting it came despite the “softening economic pace in China”.
They added: “Rhetoric around the trade dispute has worsened, so continued growth in Macau, even if modest, should show the underlying strength in mass demand now that junket GGR is solidly negative.”
Although Macau has its own relationship with the World Trade Organization distinct from that of mainland China, analysts have previously expressed concern about the U.S.-China trade war dampening Chinese consumer demand for gambling in Macau, the only place in China where casino gambling is legal.
Nomura forecast 0.5 percent year-on-year expansion in Macau GGR for June.
Praveen Choudhary, of Morgan Stanley Asia Ltd, wrote in his memo on the May revenue result: “Macau May GGR came in-line, although mass revenue continues to grow at more than 10 percent. At the current valuations, downside seems limited.”
Mr Choudhary added: “We estimate that VIP roll declined by 15 to 20 percent, suggesting strong double-digit mass revenue growth in May (compared to +10 percent in first-quarter 2019), which is positive.”
Morgan Stanley expected June GGR to be up 6 percent year-on-year, versus what it said was Bloomberg-researched market consensus of an increase of 2 percent.
Analysts DS Kim and Christopher Tang of JP Morgan Securities (Asia Pacific) Ltd, said in a Sunday note that the institution expected 1 percent to 2 percent growth for June GGR, “reflecting easy comps”. That was a reference to easier year-on-year comparisons in the second half of the year, because of the particularly robust GGR growth seen in Macau in the first half of 2018.
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