Decline deepens
In an effort to reduce the crush of tourists from Mainland China, the government of Macau has announced it will enforce measures to limit those visitors to 21 million per year. The government will concurrently work to increase international visitation.
The two-part plan is under consideration by the Central Government, according to Secretary for Social Affairs and Culture Alexis Tam Chon Weng. “Our largest market is Mainland China, which from a total of 31 million visitors accounts for 21 million,” or 66.4 per cent of all visitors. “Our selection of the visitors is aimed at reaching an equilibrium point,” said Tam.
He said the numbers can be adjusted “after the new hotels, light rapid transport and other infrastructure related to public transport are ready.”
According to a recent study, Macau can comfortably welcome up to 92,000 visitors per day. But during peak travel periods such as Chinese New Year, those numbers swell. During the most recent New Year holiday in February, 147,000 visitors per day arrived in Macau.
“This number is well above the city’s capacity,” Tam said.
Union Gaming notes that many visitors to Macau now book their trips only 48 hours in advance, making it harder for analysts to forecast revenue trends at the city’s casinos.
“Booking windows are exceptionally short to nonexistent,” said a report from analysts Grant Govertsen and Felicity Chiang. “We believe most trips to Macau are now being booked within a 48-hour window prior to arrival (if not the day of).”
The analysts added that “higher-value customers have been replaced with lower, more value-oriented customers. It is these value-oriented customers who have been priced out of the market for a period of years who are now coming to Macau given a greater availability of hotel rooms (and at lower prices) and lower table games minimums.”
They predict GGR in Macau will drop 10 percent to 12 percent this year, but say they are still “positively biased” toward the market should mass-market play increase. That should be helped by hotel capacity. Rooms in the city are set almost to double over the next few years.
Investment firm Sterne Agee said a visitation cap is “not a new issue” in Macau. “Still, it is concerning.”
Other inhibiting factors in the world’s No. 1 gaming market are a proposed full smoking ban in casinos, and the continuing insistence by the Beijing government that Macau end its economic dependence on the gaming industry. A crackdown on corruption and graft by President Xi Jinping has caused high rollers to leave the market along with junket operators.
Casino magnate Steve Wynn, chairman and founder of Wynn Resorts, says the message has been heard by operators in the city.
“When they speak to us, they’re preaching to the choir,” Wynn said during a February 3 conference call. “We have learned in the last 12 years the way to behave in China, and that is to listen very carefully to what the leadership says.”
Brokerages have slashed earnings estimates for Macau casinos by 40 percent since last June, when the crackdown intensified, according to Bloomberg Intelligence analysts Tim Craighead and Margaret Huang. They say Wynn Macau will see a 26 percent drop.
Melco Crown Entertainment Limited recently showed a 39.4 percent decline in gaming revenue for March, reported the Motley Fool. And MGM China Holdings Ltd., responded by getting more credit. The firm led by Pansy Ho amended and extended a HK$12 billion (US$1.55 billion) loan.
“The whole sector is still spending for expansion at the moment, so free cash-flow could be negative in the near term,” said Victor Yip, a consumer cyclical analyst with UOB-Kay Hian Holdings Ltd. in Hong Kong. “But all the casinos are still making profits, so I don’t expect any threat in their debt repayments unless there is significant deterioration in their revenues.”
And consumer confidence in the local economy has fallen for the first time since 2008, according to a survey from the Macau University of Science and Technology. The Macau Daily Times reports that locals are concerned about the employment picture in Macau, despite the planned openings of new megaresorts on the Cotai Strip.
“This shows that Macau consumers became relatively pessimistic, as opposed to the previous cautiously optimistic feeling about the local economy’s overall performance,” said Professor Chan Lai Kow, director of the MUST’s Institute for Sustainable Development.
Employment dropped by 8.4 percent over the course of the last year to 116.94 points, down by 6.36 percent from the previous quarter.
