Fischer: VIP won’t recover
Brokerage firm CLSA says there’s a silver lining behind the clouds overhanging Macau. According to Aaron Fischer, the firm’s regional head of consumer and gaming research, “The outlook is improving in Macau this year, and we expect revenues to increase by 1 percent, which is a much better performance than last year.”
However, he added, “The first half will still be quite difficult, and we expect general gaming revenues to be down around 20 percent. But as we move towards the end of the year, it will improve somewhat and in the second half of the year we expect positive growth.”
According to the Macau Daily Times, Fischer attributed his optimism to the opening of new projects on the Cotai Strip, including Sands China’s Parisian resort, the Wynn Palace, MGM Cotai, and Melco Crown’s Studio City, which debuted in October. The slew of new resorts has been a cause for concern among some analysts, who fear oversupply in the midst of a 19-month recession.
But Fischer believes the new resorts will underpin a stronger mass market. The uplift could be felt into 2017, when he expects premium and mass segments to grow GGR by 12 percent. Last year, gaming revenues came in at MOP230.8 billion (US$28.8 billion), a drop of 34.3 percent year-on-year from MOP351.5 billion. However, he said the new resorts will likely steal market share from the existing resorts on the peninsula.
In another cautionary note, Fischer added, “Our outlook is still negative for VIP. We think that it peaked in 2013 and that it won’t recover. So we generally remain cautious on VIP, but the mass market can grow.
“It’s important to remember that Macau is still in very good shape,” said the analyst. “Macau’s gaming operators are still earning reasonable profits; nobody needs to feel sorry for them.”
The shift to a mass market could draw more overnight visitors, said a note from brokerage Sanford C. Bernstein Ltd. cited by GGRAsia. The firm was responding to recent reports that only 8 percent of Chinese tourists who visited Macau plan to ever return; visitation to Macau fell 2.6 percent year-on-year in 2015; and the number of same day visitors fell by 5.2 percent.
At the same time, Bernstein pointed out, overnight visitors rose 14.2 percent year-on-year. “We believe the new large casino resorts (Studio City, Galaxy Macau Phase II) have started to attract overnight visitors from further parts of China,” said the analysts. Bernstein has especially high hopes for Sands China, which has a strong non-gaming business and a premier position on Cotai. “Sands’ market-leading margins, strong mass-oriented product offering, a new key property set to open in late 2016 and focus on returning of capital to shareholders makes Sands an attractive buying opportunity,” said Bernstein analysts. “We reiterate an ‘outperform’ rating on Sands China.”
Daiwa Securities Group Inc. analysts also weighed in, saying Melco Crown “saw mass GGR improve by 20 percent quarter-on-quarter, which we largely attribute to the opening of Studio City in October 2015.” Daiwa is still “neutral” on the Macau casino sector as a whole, but “prefers the Cotai-ready operators amid the market-share shift from the peninsula to Cotai.” Galaxy Entertainment Group Ltd., which recently opened its Phase II and Broadway expansions on Cotai, has also seen a boost in EBITDA thanks to the shift from high-roller to mass play.
The brokerage firm Wells Fargo predicts the January numbers will show a contraction in the gaming industry of between 18 percent and 22 percent. According to CNBC, Macau will continue to struggle due to the softer Mainland economy as well as the government’s ongoing crackdown on graft, corruption and money laundering.
Meanwhile, gaming consultant David Green said additional regulations for the city’s troubled junket sector are “desirable,” but may not be essential. “The existing regulations are already quite extensive,” said Green. “There are already plenty of tools which are available for the regulator to provide a better regulatory environment. You do not simply write new law for the sake of it.”
