Macau Analysts Look for a Rebound in 2020

Revenue-wise, the booming casino enclave of Macau took it on the chin in 2019. As the new year begins, experts say the downturn is all in the past. With the trade war between the U.S. and China winding down after an agreement was reached between the two countries, and Beijing’s support of Macau as demonstrated in a December visit by Chinese President Xi Jinping (l.), things are looking up for the SAR.

Macau Analysts Look for a Rebound in 2020

Last year was a challenging one for Macau gaming, but analysts consider it to be firmly in the rearview mirror and are looking forward to the market hitting its stride in 2020.

A major retreat by the VIP segment sent 2019 casino revenues into a 3.4 percent decline versus the previous year, the combined result of several factors: slowing economic growth in China, which supplies the vast majority of the territory’s gamblers; geopolitical tensions heightened by the U.S.-China trade war; months of political unrest in neighboring Hong Kong; a central government crackdown on cross-border gambling, which crimped business for the junkets that finance high rollers; and competition posed by the growing availability of high-level resort-scale gaming elsewhere in the region.

December was especially hard-hit. Travel from mainland China was temporarily restricted, and border security beefed up ahead of a state visit by President Xi Jinping for a celebration of the 20th anniversary of Macau’s return to Chinese sovereignty. The month proved the worst of the year for gaming revenue, down 13.7 percent versus December 2018. It was the worst since March 2016’s 16.3 percent decline.

But Stifel Financial gaming analyst Steven Wieczynski, for one, isn’t overly concerned, writing in a New Year’s Day research report: “Even with gross gaming coming in below consensus, we don’t believe investors were overly focused on December’s results given the many headwinds the month faced.”

The Bloomberg Intelligence index of Macau operators actually rose 12 percent in December compared to a 7 percent gain in Hong Kong’s benchmark Hang Seng index

The optimism should continue, says Wieczynski, who expects 2020 to see revenue rebound by as much 4 percent.

Jefferies analyst Andrew Lee says he’s looking for “positive drivers,” such as this month’s expected truce in China’s tariff war with the U.S.

“We believe the persistent headwinds are easing and could potentially pivot to become tailwinds,” said Lee.

Casino operators, meanwhile, are gearing up with significant investments in new hotel rooms and non-gaming attractions. They’re looking to take advantage of improvements in infrastructure, such as the recent opening of a light rail line and a new border checkpoint at Hengqin Island in the neighboring province of Zhuhai. They also are relying on the eagerness of the central government to foster closer economic ties to offset the widespread disaffection in Hong Kong.

Sands China, the Macau arm of the Las Vegas Sands Corp., is planning to spend US$2 billion over the next two years to renovate and enhance its properties in the jurisdiction. The company is primarily focused on rebranding its Sands Cotai Central complex into a highly themed $1.35 billion resort called the Londoner Macau.

Wynn Resorts is spending $2 billion to add non-gaming enhancements to a site near the Wynn Palace, including two new hotel towers totaling 1,300 rooms, and an attraction called Crystal Pavilion, which will include an art museum, floral gardens, an entertainment venue and restaurants.

Nomura Instinet analyst Harry Curtis said another huge benefit could come in the form of some clarity on how the pending expiration of the current six gaming licenses will be handled.

“A black swan positive would be initial indications from Macau’s new government on reasonable steps license holders need take to retain their concessions,” he said in a recent research note.

In the meantime, all eyes are on the coming weeklong Lunar New Year holiday, a major occasion for travel in China and historically a boom time for the casinos. This year’s holiday runs from the last week of January through the first week of February.