Galaxy a Non-Starter in Macau

The grand opening of Phase 2 of Galaxy Entertainment’s Cotai resorts may not move the needle in Macau. Gross gaming revenues for June are not expected to see a jump, despite the new attractions.

No change in near-term, say analysts

Macau casino operators who hoped new resorts on the Cotai Strip would end the yearlong industry slump may be disappointed, at least in the near term. According to the Asia Gaming Brief, Sterne Agee analyst David Bain says June GGR is not likely to exceed recent month-on-month averages.

“Instead, June GGR will likely be something we believe investors will view skeptically ahead of an additional ~$14.1 billion of property opening investments through CY16,” Bain wrote in a note.

“Another factor is its relatively small table allocation versus investment,” he added. The government has retained a 3 percent annual cap on table games, and granted the properties 150 tables instead of the 400 Galaxy requested. “Proper table allocations will be necessary to forward opening successes, and we believe Galaxy’s relatively benign market impact to date demonstrates this.”

Union Gaming Research wrote that Galaxy’s $2.6 billion expansion “is off to a slow start,” and a possible full smoking ban could aggravate the situation.

On the website, commentator Nicholas Mushaike wrote that Macau casino stocks “are trading at their lows” but the setback “is not permanent.”

“Chinese equities are dancing in bubble territory,” he wrote, but “for exposure to China, gambling stocks offer a cheap entry point” into the market.

As reported in the Macau Daily Times, the city’s Economist Intelligent Unit has “significantly increased its economic contraction forecast for the Macau economy this year to 24 percent,” up from just 6 percent forecast just weeks earlier. However, the EIU also increased its growth projection for the 2016 economy from 5.3 percent to 6.7 percent.

Lionel Leong Vai-tac, secretariat for Economy and Finance in Macau, acknowledges that June gaming revenues may drop as much as 20 percent from May, according to June is typically a slower month for the city’s dominant industry. But to offset the losses, the city government has begun cutting costs and eliminating nonessential services.

As the recession continues, Macau authorities may be planning tougher enforcement of a law that regulates casino advertising, said a note from Macau-based law firm MdME. Firm partner Rui Pinto Proença said new guidelines “suggest that authorities may step up supervision and enforcement of the 1989 Advertisement Law.” Companies that breach the law would be subject to fines up to MOP28,000 (US$3,500). Those fines could double for second offenses.