Daiwa Securities Group Inc on Monday said it expected visitors from mainland China to Macau to be rationed to three trips every 60 days. The note didn’t specify if the rumoured rationing would apply to Individual Visit Scheme (IVS) travellers or also to package tour visitors, although it did refer to “visa holders”.
On May 22, the Macau government reported that April saw a 3.4 percent year-on-year decline in visitor arrivals from all jurisdictions, as the number of mainland Chinese travelling to the city fell for the second month in a row. Mainland Chinese accounted for 66.9 percent of the aggregate number of Macau visitors in the first four months this year – or 6.66 million arrivals.
There has been speculation for months in the local and international media about a possible cap on aggregate numbers of visitors to Macau. That followed remarks from a senior Macau official regarding quality of life for locals in the territory.
But some investment analysts have suggested any blanket limit on tourism would be hard to operate, and point to the fact that IVS rationing has been used before – although such a policy was never officially announced by the mainland authorities.
In 2008 it was reported by mainland China and Macau media that visits by mainland tourists to Macau under the IVS had been reduced to as few as four per year for each individual traveller. Those restrictions were reportedly to cool the Macau casino market, which grew by 47 percent year-on-year in gross gaming revenue (GGR) in 2007. The restrictions were reportedly later eased due to the global financial crisis in 2008.
Daiwa analysts Jamie Soo, Adrian Chan and Jennifer Wu wrote on Monday: “Macau’s visa situation could further dampen mainland visitor arrivals in the next few months. Our on-the-ground research suggests that effective 1 July 2015, visa holders will be prohibited from entering Macau more than 3 times within a 60-day period, regardless of travel to a third destination.” The latter is a reference to transit visas issued usually to business people and that have been used to make a side trip to Macau but have already been subjected to tighter controls by the Macau authorities.
Daiwa’s latest bearish analysis came in a note titled ‘Build it and they can’t come’, a gloomy play on a popular industry phrase that described how – at least in the past – incremental Macau casino supply created incremental demand. The phrase was originally taken from the Hollywood film ‘Field of Dreams’.
The bad news for Macau doesn’t stop at the visa situation, said Daiwa.
“Our channel checks suggest that over 300 staff may be laid off by junket operator Guangdong Group by the end of June, and that David Group is planning further room closures (both junkets are among the top-five in Macau by market share). We are also hearing of potential junket table cuts in other junket rooms. The incremental negative impact of this may start to be seen in industry GGR in June,” wrote the Daiwa team.
GGRAsia asked David Group for a comment, but there was no reply by the time this story went online.
Lei Kuok Keong, vice president of Macau casino worker lobby group Forefront of Macao Gaming, had told Chinese-language newspaper ‘All About Macau’ last week that David Group could close two more VIP rooms this month. Mr Lei told the newspaper that the labour group estimates that about 400 employees could face losing their existing jobs in a new round of VIP room closures.
“There has been much talk of stabilisation and a potential sequential recovery of GGR. However, emerging trends do not support this view, with new developments suggesting further weaknesses across all segments,” the Daiwa analysts noted in their Monday report.
Macau gaming names moved lower in morning trading in Hong Kong on Tuesday. Analysts had additionally reported overnight that the first seven days of Macau’s June casino revenue were lacklustre – despite the industry’s hopes for a bounce effect due to the opening of Galaxy Macau Phase 2 and Broadway at Galaxy Macau on May 27.
“The weekly result (even luck-adjusted) is poor and would represent the weakest week this year,” said a note on Monday from Sanford C. Bernstein Hong Kong Ltd. Analysts Vitaly Umansky, Simon Zhang and Bo Wen stated that according to industry data they have seen, average daily revenue (ADR) through to June 7 was MOP521 million (US$65.3 million) – nearly 21 percent lower than the MOP656 million ADR for the whole of May.
“The weak GGR is partly attributable to a low luck factor in VIP. Adjusted for the luck, we estimate ADR would have been in the MOP560 million to MOP585 million range, still below our expectations,” added the analysts.
Melco Crown Entertainment Ltd was leading a decline in casino stocks in Hong Kong trading on Tuesday, down over 5 percent by the midday break, while Wynn Macau Ltd lost 4 percent. MGM China Holdings Ltd fell 3.5 percent, Galaxy Entertainment Group Ltd dropped 3.3 percent, Sands China Ltd was down 2.7 percent and SJM Holdings Ltd lost 1 percent.
A reason that the June GGR numbers are of particular interest to analysts is that they potentially offer an easier year-on-year comparison. That is because June 2014 was the first time since the final quarter of 2008 that Macau monthly GGR actually contracted.
“Despite signs of stabilisation, industry growth visibility remains low as it is still early days to assess whether new supply can create incremental demand, whilst various regulatory overhangs (e.g., smoking ban, visa cap, table cap) remain,” wrote Richard Huang and Stella Xing of Japanese brokerage Nomura in a note on Tuesday.
They added that industry consensus forecasts of a 23 percent contraction in Macau’s 2015 GGR imply a 12 percent increase in average daily GGR in the second half. This “seems aggressive versus the +3 percent growth in industry table supply after Galaxy Phase 2’s opening,” wrote the Nomura team, referring to the 150 new-to-market tables given to the resort’s developer and operator Galaxy Entertainment.
Note – An entity signing itself as “Neptune Guangdong Group” has meanwhile denied that it is the junket investor facing 300 layoffs this month.
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"There is still no clarity about when border easing for Macau will occur. In the end these changes are needed to see a rebound for Macau business"
Vitaly Umansky, Louis Li and Shirley Yang
Analysts at brokerage Sanford C. Bernstein