Nomura Securities expects the Macau market to almost double in size from US billion in casino revenues currently to at least billion for two related reasons: the market is still hugely underpenetrated, and that means new supply will continue to drive growth.
“Our analysis suggests that a penetration rate of 25 percent-plus indicates a mature market,” analysts Louise Cheung and Purdy Ho write. “If we assume each Mainland Chinese visitor makes two-three trips to Macau per year, this implies unique visitors from China are actually about 6-9 million, which implies a penetration rate of just 1.4-2.1 percent. To put it another way, Mainland Chinese visitation to Macau needs to increase to 217 million, or 12 times the 2013 level of 19 million, before Macau approaches a mature market.”
They note that also that in an underpenetrated market, as more casinos become available in Macau, the pie will expand with a multiple effect.
“In mature markets such as the US, one gaming position serves (about) 200 people, while in Australia one gaming position serves about 70 people. In Macau, one gaming position serves around 1,900 people. Even after we account for the 2015-2017 growth spurt, one gaming position in Macau only serves (approximately) 1,300 people.”
Noting the historical impact of new supply on the market, they say, “Since 2004, gross gaming revenues recorded a 27 percent CAGR through 2013 while gaming positions increased at a 21 percent CAGR through the same period.”
Not surprisingly, Nomura doesn’t hold with the prevailing sentiment among investors that Macau casino stocks might be maxed out in terms of upside. The firm notes that while gaming revenue grew in January at its slowest pace since October 2012, the subsequent strong Chinese New Year—the total for the first six days of February was US$1.04 billion—should ease investor concerns about any perceived softness in the market.
Visitor arrivals in the seven days from January 31, the first day of the holiday, to February 6 rose by 12.5 percent compared to the same period last year to more than 1 million.
“Assuming historical seasonality, GGR for rest of February will be at least as high as December (MOP1.1 billion/day),” said Deutsche Bank analyst Karen Tang. “This implies that Feb GGR will likely jump at least 20-25 percent year on year.”
Nomura agrees. “We estimate that Feb could look +20 percent-25 percent YoY, assuming a daily table win of HKD1.01 billion-1.07 billion for the rest of the month and slot revenue of HKD1.3 billion.”
