Vegas-style grinding recovery for Macau: Nomura
The Macau casino market currently has some structural challenges similar to those faced by Las Vegas from 2007 onwards, including a market experiencing an increased supply of resorts while demand is still facing headwinds, says a report from Japanese brokerage Nomura.
The likely solution to Macau’s troubles could be similar to that for Las Vegas – namely a “slow grind” recovery based on the mass market, rather than the high roller trade on which Macau as traditionally relied, said Nomura.
“While the drivers behind the slowdown in Las Vegas are not identical to Macau’s, there are still five key takeaways that we want investors to be aware of,” said the Nomura team in Friday’s report.
Its analysts noted: “Deteriorating customer mix was the key culprit behind the Las Vegas slowdown; second, returns on invested capital from new casinos declined to 4 percent to 10 percent (versus 20 percent from casinos opened in the 1990s; third, there was limited cannibalisation from new openings; fourth, new casinos took three to four years to ramp up; and fifth, losses at new openings turned out to be temporary.”
Casino gross gaming revenue (GGR) in Macau declined by 8.5 percent year-on-year in June – marking 25 consecutive months of declines – and by 11.4 percent year-on-year in the first half, mostly driven by a slowdown in VIP gambling. Amid the deterioration particularly of the high-end market, four more casino resorts are due to open between this year and the end of 2017.
Two major new casino resorts – Wynn Palace from Wynn Macau Ltd and the Parisian Macao from Sands China Ltd – are due to open on August 22 and September 13 respectively, adding a total of 4,700 extra rooms to Macau’s hotel inventory and in likelihood hundreds of new-to-market tables to the local casino sector.
The HKD24-billion (US$3.1 billion) MGM Cotai, developed by MGM China Holdings Ltd, is scheduled to open in the first quarter of 2017. It will offer approximately 1,500 hotel rooms and suites.
Grand Lisboa Palace, the first Cotai casino resort from SJM Holdings Ltd, is expected to add a further 1,450 rooms to the market when it is completed in late 2017.
When the US$9-billion CityCenter complex from MGM Resorts International launched on the Las Vegas Strip in December 2009, it added approximately 4,800 rooms and 150,000 square feet (14,000 sq metres) of gaming space – plus 500,000 sq ft of retail and entertainment space – into a still recession-hit U.S. consumer environment.
Nomura noted in its Friday report: “While both Macau and Las Vegas are US$40-billion tourism markets [annually], their revenue compositions are vastly different, with non-gaming spending in Las Vegas four times larger than in Macau.”
The brokerage added, regarding the prospects for the Macau market: “New casino openings (resulting in a 28 percent rise in hotel rooms over 2016 to 2018) and infrastructure improvements (connecting Macau to Hong Kong International Airport, eighth-largest airport in the world) will be key drivers to Macau’s non-gaming growth. But we see significantly less scope for the gaming market to grow, considering gaming penetration in China is largely on par with that of the U.S. overall. Lessons from Las Vegas suggest a slow-grind recovery.”
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