Analysts expect November will be the worst month this year for gaming revenues in Macau.
Nomura’s Harry Curtis, Daniel Adam and Brian Dobson said they expect a decline of 8 percent to 10 percent compared to November 2018, which would be the largest year-on-year contraction through the first 11 months, beating August’s 8.6 percent drop.
In a recent note to investors, the trio attribute most of the expected falloff to VIP. The super-high-end segment has been slumping all year in response to factors touching on the larger Chinese economy and continued weakness in China’s currency, the renminbi, versus the U.S. dollar. Macau’s casinos report revenue in the local currency, the Macau pataca (MOP). Actual play, however, is conducted in Hong Kong dollars, which is directly pegged to the U.S. dollar at a fixed rate.
At the same time, the currency issue does not appear to be affecting mass market play, which was tracking in November at 8-10 percent higher than last year on a revenue basis, according to Nomura’s research. VIP volumes, meanwhile, were tracking 31 percent to 32 percent lower, the brokerage said.
“We estimate GGR for the month should settle around MOP22.5 billion to MOP23 billion (US$2.7 billion-$2.76 billion),” the three analysts wrote.
Brokerage Sanford C. Bernstein concurred with Nomura’s assessment of the VIP fall-off, projecting volumes for the month will show a percentage decline in the low 30s, again attributing it to macroeconomic factors on the mainland, including softness in the renminbi.
Analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu said in a client note they expect total revenue will be down 10 percent to 13 percent versus last year.
Bloomberg’s consensus estimate as of mid-month was more optimistic, projecting a year on year decline of 5 percent.
Looking ahead to next year, Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Thomas Allen have lowered their 2020 estimate of full-year revenue growth 3 percent to 2 percent, warning that “GGR growth could remain negative in the first half of 2020 unless VIP recovers.”
They forecast mass revenue to be up 11 percent for the year, but VIP to be down 13 percent.
“We think regulatory pressure on money movement and slower China property recovery are the reasons for continued weakness in VIP,” they said.
They added, “For future performance, we focus on 2020 EBITDA estimates, which have been down 5 percent since January 2019. We do not expect them to go up unless the VIP trend improves.”
Accordingly, they’ve lowered their estimated 2020 EBITDA growth on a year-on-year basis from 11 percent to 6 percent.
