Does market need new hotel rooms?
Analysts at Morgan Stanley say the tide has finally turned for Macau. The world’s top gaming destination, which struggled through a two-year downturn, finally emerged with positive growth starting in August and has been gaining strength ever since.
“We believe the Macau cycle has turned and 2017 could show 10 percent GGR and 13 percent EBITDA growth, the first in four years,” the analysts said, crediting the positive performance in the second half to strong mass and VIP play.
“We think mass revenue can sustain high single-digit growth in the medium-term,” said the team. The trend will be driven by better infrastructure in the city; increased visitation; more spending per visitor; more overnighters; and a concerted effort by operators to boost non-gaming attractions, according to the Asia Gaming Brief.
The website Yogonet.com reported that the 30 casinos in Macau posted a 1.1 percent year-on-year increase in aggregate gross gaming revenues for August; followed by a 7.4 percent spike in September; 8.8 percent in October; and 14.4 percent in November. The sector brought in approximately $25.5 billion for the first 11 months of 2016, the website reported.
According to the Macau Business Daily, analysts from Wells Fargo Securities have predicted average daily revenues for the first 11 days of December at around $86.3 million, for a median for the month of as high as $83.2 million. The firm attributed the growth to the “Chinese monetary stimulus and the re-inflation of the Chinese housing bubble” buts said these factors “won’t drive prolonged, above-trend growth.”
Wells Fargo noted VIP volumes with some junket operators “seeing 15 percent to 20 percent growth in volumes.”
In 2017, according to brokerage Sanford C. Bernstein, casino operators in the city could benefit from additional hotel capacity to stem “bottlenecks” caused by increased demand on weekends and holidays.
“Currently, almost all the mass market recovery has come from play on weekends and holidays,” said the Bernstein team. “Operators will need more hotel capacity and at some point in the future more gaming capacity.”
Macau had 36,200 hotel rooms at the end of October, a year-on-year increase of 14.6 percent, according to the city’s Statistics and Census Service, reported GGRAsia. They include 1,700 rooms at the new Wynn Palace and 3,000 rooms at Sands China’s Parisian Macao. There are now 14 hotel projects under construction in Macau and 38 projects seeking government approval. They would add a collective 14,500 new hotel rooms to the city.
Despite a substantial increase in room supply, hotel occupancy in November reached 91.6 percent, up 6 percent year-on-year.
For all the good news, Nomura Holdings Inc. analyst Richard Huang warns that property-tightening measures in Mainland China could slow the growth of VIP gaming, which could take some of the steam out of the recovery.
“A lot of Chinese people are earning wealth from the property market as well as the commodities market,” said Huang. “And part of the money would flow into Macau’s VIP gaming.” If it is curtailed in any way, it will also dampen the VIP gaming sector.
“Because of the recent recovery, some are turning bullish on its growth prospect, but we do not share that optimism,” said Huang. “Our in-house view is that the property market will soften next year, which will have a negative impact on the VIP segment.”
He added, “A recovery in the VIP market goes directly against what Beijing and the local Macanese government are looking for.”
