A slowing Chinese economy, junket uncertainties and a major storm combined to drive Macau’s August gaming revenue to its worst performance of the year.
Results released by the government’s Gaming Inspection and Coordination Bureau showed casinos won the equivalent of US$3.03 billion from gamblers during the month, a drop of 8.6 percent compared to August 2018 and roughly twice the consensus forecast of a 4 percent decline. It was the second month in a row that ended up worse than last year’s, and the fifth month this year of decreases compared to 2018. It was also the largest monthly revenue decline in percentage terms in more than two years.
Through the first eight months of the year, gaming revenue is off 2018’s YTD by 1.9 percent.
“With so many headwinds facing the Macau market in August, we aren’t surprised the actual Macau gross gaming revenue came in below expectations,” Stifel analyst Steven Wieczynski said.
In 2018, Macau’s casinos won $37.6 billion, up 14 percent over 2017 and the second consecutive year of gains after a slump of three years during which the VIP market, which generates around 70 percent of the territory’s gaming revenue, all but collapsed in reaction to a Chinese government crackdown on corruption and lavish spending by Communist Party officials.
This time around, the declines again are tied to cutbacks by VIPs and other premium players. This may stem in part from a slowdown in junket activity in China in response to a recent attack in a state-run media outlet on junket giant Suncity for allegedly promoting illegal online gambling by mainland citizens.
But it could be, too, that junkets are tightening the credit tap amid signs of a slowdown in the Chinese economy. Wealthy players could be exercising more caution for the same reason. The trade war with the U.S. may well be adding to the uncertainty, as are signs of weakness in the yuan relative to the U.S. dollar.
“The messages have been more mixed than expected,” said Jefferies gaming analyst David Katz. “(With) the pressure from the trade war and continued regulatory pressure on junkets, it remains hard to be bullish.”
The weather didn’t help either. A typhoon struck parts of the mainland early in the month and hampered visitation from some quarters.
A typhoon also hit Macau last September, forcing casinos to close for several days, leading some analysts to expect a much easier revenue comp this September.
The current consensus is for a 6 percent increase, with Vitaly Umansky of Bernstein forecasting a possible 9 percent rise and Felicia Hendrix of Barclay’s at the lower end forecasting 2.5 percent.
Macau Secretary for Economy and Finance Lionel Leong, meanwhile, has expressed concern for the welfare of the local economy, which is almost entirely dependent on growth in the gaming sector. Macau’s economy shrank by 2.5 percent year-on-year in the first half as major capital investment dropped by 28.8 percent and export of gaming service fell by 0.7 percent. The official expectation is for exports of all services to contract, including gaming, to contract in the third quarter.
Leong said the government is keeping “a close watch” on the local economy and will employ stimulus measures to protect employment should a “serious” downtrend manifest itself.
Tourism officials noted year-on-year growth in visitor arrivals in August, which allays some concern that inbound group tours might be negatively affected by the months of street protests in Hong Kong that have disrupted transportation and forced the city’s international airport to close at one point.
Observers, however, point out that tourist volume in itself is not necessarily a predictor of casino industry health. Like most casino markets, the lion’s share of Macau’s gaming revenue is generated by a relatively small pool of players in Macau’s case, by big-spending baccarat players, most of them, by far, from close-in markets in mainland China.
