Crackdown actually in its third year
Gaming revenue in the world’s No. 1 casino town took another breathtaking dive last month. On April 1, Macau’s Gaming Inspection and Coordination Bureau reported a 39 percent year-on-year decline, hewing it analysts’ median expectation of about 40 percent. February was the worst month, with a drop of almost 49 percent during the Lunar New Year, usually a peak visitation period.
Gross gaming revenue tumbled to 21.5 billion patacas (US$2.7 billion) last month for the 10th straight month of decline. The city is now officially considered in recession, but Bloomberg News reports that the anti-graft campaign launched by Beijing actually began in 2012. It was precipitated by a slowdown in the once-booming Chinese economy, which motivated President Xi Jinping to curb the outflow of high-roller money. A smoking ban in casinos and stricter visa rules have also put a damper on business.
President Xi Jinping’s campaign against fraud has caused high rollers to patronize other markets, including Australia, Cambodia, the Philippines, South Korea and Vietnam. Even Las Vegas and some countries in Europe are picking up some of China’s high rollers. Xi has put Macau on notice that it must wean itself from a dependence on gaming, which has historically provided up to 80 percent of annual government revenues.
Though the news is dismal, analysts seem relieved that the losses are holding at about 40 percent. Shengyong Goh of BNP Paribas SA told Bloomberg, “The in-line result is just showing that the market is stable. I would think that the worst dip is over.” He added, “It’s going to be long time before any upside catalyst.”
Some experts have forecast an upswing in the third and fourth quarters, but CLSA Ltd. analyst Aaron Fischer cautioned that the whole year will be one of negative growth, with declines posted every month. “We’ve become more cautious on the sector because we’re seeing bigger declines in VIP” gaming, he said. “The anti-corruption measures in China have a negative impact on sentiment and people’s desire to travel to Macau.”
Even so, according to a note from Kuala Lumpur-based CIMB Group, “Even if GGR were to fall 31 percent this year to MOP243 billion, the six licensed operators would still be able to achieve positive operating profit, which is a key metric.
“Hence, despite Macau’s reliance on the gaming industry for tax receipts, we have not yet reached a crisis point where policy negotiations need to be held between the Mainland and Macau governments to stop the bleeding from negative gaming growth,” said CIMB in its note.
Francis Lui Yui Tung, vice chairman of Galaxy Entertainment Group Ltd, spoke to GGRAsia about the adjustments that operators will have to make in order to endure. “You cannot expect that from now on all the profit growth you have enjoyed for the last 10 years is going to continue,” he said. “So personally, I think you have to adjust yourself to make sure that in the next 10 years’ time you will be equally profitable.”
In its report, Fitch Ratings has lowered its 2015 forecast for Macau based on other inhibiting factors including the planned full smoking ban and stricter visa rules. “We revised the forecast down to negative 22 percent from negative 4 percent,” the agency wrote. “We expect some recovery in the coming months.”
