Wells Fargo cuts Macau estimates for 2015
Positive developments over the past month for the Macau gaming industry, including the longer border operating hours between the city and mainland China, have been offset by a number of negative news, “including the increased scrutiny regarding transit visas and the weak like-for-like November mass growth,” says Wells Fargo Securities LLC.
Disappointing gross gaming revenue (GGR) data for November and reduced expectations for December are driving down fourth quarter estimates, analysts at the investment bank wrote in a report, saying that the slowdown is likely to persist into 2015.
Mass table games revenue in Macau fell 13 percent year-on-year in November, according to unofficial industry returns quoted by a number of investment analysts. Macau’s total GGR for November fell 19.6 percent year-on-year, to MOP24.27 billion (US$3.04 billion).
Wells Fargo expects a 22-percent drop year-on-year in GGR for December, with revenue from VIP play falling by 28 percent and mass revenue dropping by 12 percent.
“We believe Macau gaming could remain weak for longer than expected (at least six months),” said the Wells Fargo team, led by senior analyst Cameron McKnight.
“We are now forecasting -4 percent same store total revenue growth in 2015 (prior -2 percent), comprised of 2.0 percent same store mass (prior 5 percent) and -7 percent VIP growth (prior -7 percent),” said the note.
It added: “We expect 2 percent total market growth (prior 3 percent), when factoring in the Studio City and Galaxy [Macau second phase] openings.”
Wells Fargo analysts advised investors to remain on the sidelines until there is “either a sustained macroeconomic/credit rebound [in mainland China], a change in China policies toward Macau, or upward earnings momentum”.
Macau’s Chief Executive, Fernando Chui Sai On, on Sunday reiterated that his government is being cautious about next year’s budget due to the slowdown in casino GGR. He said the territory’s economy is going through a period of adjustment, which his administration was already expecting.
Mr Chui said the government drafted the budget for 2015 estimating monthly GGR of MOP27.5 billion, down from the MOP30-billion estimate used for the 2014 budget.
According to the draft budget delivered to the territory’s Legislative Assembly last month, the government expects to collect MOP115.5 billion in direct taxes from gaming in 2015. That is down from the MOP117.8 billion it had forecast for 2014.
The government collected MOP110.2 billion in direct tax from gaming in the 10 months to October 31 this year, accounting for 83.5 percent of the administration’s total revenue.
The Macau government levies a special gaming tax on casino GGR at the rate of 35 percent. It also collects about 4 percent of the gross in indirect taxes for social and promotional purposes, as well as a levy on each gaming machine, live dealer table and VIP room.
Speaking to reporters before flying to Beijing on Sunday, Mr Chui pledged to keep an eye on the performance of the city’s gaming industry and act as needed.
Lionel Leong Vai Tac, Macau’s next Secretary for Economy and Finance – the official overseeing the city’s casino industry – had also said last week he will “pay special attention” to the current decline in gaming revenue. Mr Leong was confirmed as secretary on December 1, and will replace Francis Tam Pak Yuen. Mr Leong will take office on December 20.
Commenting on the change, Wells Fargo said: “Despite some concerns over Tam’s departure (he has held the position since 1999), we believe that Leong is a suitable replacement, and his tenure could mark a potential catalyst for positive reforms.”
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