Macau gross gaming revenue (GGR) could show a year-on-year fall of 21 percent for October when official numbers are released, suggest several investment analysts. The figure is to be released on Tuesday, following a public holiday on Monday for government workers.
If the predictions for October GGR are accurate it would mean the biggest year-on-year monthly decline since the Macau government started to issue GGR data in its current form in 2005.
Wells Fargo Securities LLC in New York said in a note on October 31 that there was a “risk to the consensus 10 percent October mass-market growth estimate”. That was a reference to the fact that until recently expansion in mass market play has made up for some of the decline seen in the high roller segment.
The note from Wells Fargo analysts led by Cameron McKnight stated: “Specifically, our checks suggest the potential for low single-digit mass market growth.”
The Wells Fargo team added it was predicting a 21 percent year-on-year decline in GGR for October, driven by a 34 percent fall in VIP, and only 5 percent year-on-year expansion in the mass market.
A note on October 27 by Kenneth Fong and Isis Wong of Credit Suisse AG in Hong Kong, indicated October GGR was on track to drop by 21 percent year-on-year to MOP28.9 billion (US$3.6 billion), assuming an average daily revenue of MOP850 million for the rest of month.
Macau’s Secretary for Economy and Finance, Francis Tam Pak Yuen, had warned on October 23 that casino GGR in October was expected to drop further judged year-on-year than in September, when it declined by 11.7 percent.
Publicly available information produced by the Macau government indicates that the previous largest recorded year-on-year decline in monthly revenue occurred in January 2009 and June 2009, when it fell 17.1 percent in both cases.
The next sharpest fall was in February 2009, when it slipped 15.5 percent year-on-year. In those cases, the weakness was attributed generally by analysts to world macroeconomic factors linked to the global financial crisis that started in late 2008. This time the retreat seems to be linked more to domestic politics in mainland China.
Wells Fargo said in its note: “We continue to see balanced risk/reward for the next six months as we believe China policy settings are negatively impacting growth, particularly: (1) visa restrictions, (2) anti-corruption drive, (3) pull-back in credit, and (4) soft housing market.”
Chinese high rollers in particular seem to have eschewed the city’s gaming tables in the wake of the mainland’s crackdown on conspicuous spending and corruption, but still appear to be spending enthusiastically in other gaming jurisdictions.
NagaCorp Ltd, operator of the NagaWorld casino resort in Phnom Penh, Cambodia, reported a 24 percent increase in its third quarter GGR. Analysts noted there was a 17 percent increase in mainland Chinese visitors to Cambodia in the first seven months of 2014, although they also note there is not necessarily a positive correlation between general growth in Chinese tourism and growth in casino VIP business in such markets.
Grant Bowie, chief executive MGM China Holdings Ltd – one of Macau’s six casino operators – gave a possible explanation for the weaker October gaming numbers which in previous years have been bolstered by China’s Golden Week holidays
Mr Bowie said during the third quarter earnings call for the parent MGM Resorts International on October 30, that the central government appeared to have a policy of smoothing the spikes in spending across the country typically seen during major holidays.
He stated: “If we went back to National Day last year, we saw a similar effect where the growth wasn’t as pronounced month-on-month. And I think that’s consistent with actually the trend in China now where the government is now trying to flatten out these spikes.”
The central government in September signalled it planned to introduce a system of paid annual leave for Chinese workers. That would replace the mass exodus approach seen under the previously centrally planned holiday calendar, when many factories used to shut down at the same time.
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”Many investors cite Golden Week as a catalyst to significant, sustainable visitation increases and a showcase for profitability for many casinos [in Macau]... However… we are concerned recovery estimates may again be pushed back”
Analyst at Roth Capital Partners