Macau’s gaming industry and those who invest in it are looking for a big lift from next month’s Golden Week holiday as early returns point to a another down month in September for the world’s largest casino market.
“While forward bookings generally mean little to nothing in Macau, we were surprised to hear that high-end demand appears solid for the upcoming Golden Week period,” said Deutsche Bank analyst Carlos Santarelli in a recent client note.
“In an admittedly unusual twist, contacts expressed surprise that high-end players have actually called in advance for reservations, despite, historically, just arriving with the expectation of service,” he said.
In its analysis of three consecutive months of year-on-year revenue declines, driven mainly by a sharp fall-off in VIP play in the wake of China’s anti-corruption crackdown—and with a smoking ban coming into force on October 6 likely to wreak additional damage—the bank has come away with a positive take.
Declining growth in mass-market play, the industry’s most profitable segment, is the latest concern, but the bank believes there is no reason for alarm and says investors might benefit from some perspective, noting that overall mass revenue generation and head counts remain “rather solid” and that operators “sense little apprehension around mass trends”.
Elsewhere, though, the outlook had turned decidedly bearish, with forecasts for September worsening, according to checks by Credit Suisse, Wells Fargo and others.
Average daily gaming revenue has dropped about 20 percent year on year through the first 14 days of the month, Kenneth Fong and Isis Wong of Credit Suisse note. “Average daily revenue of MOP800 million month-to-date further decelerated from MOP839 million/day in the last week of August as (the) summer holiday is over and junket liquidity remains tight,” they said.
They expect the month will end with a 14-16 percent drop year on year.
“The Chinese economy and Macau continue to remain soft, and weak growth trends into Golden Week and the smoking ban may create additional uncertainty,” wrote Wells Fargo’s Cameron McKnight, who is projecting a 17 percent decline in September.
Japanese investment brokerage Nomura is looking for minus-6 to minus-10 percent.
If these forecasts prove correct, it would spell the most sustained retreat for Macau since the 2008-2009 global financial crisis, and as in previous months, the culprit is expected to be continued market-wide weakness in VIP, which accounts for around 60 percent of the industry’s aggregate take. Nomura’s data suggest VIP revenue could decline by as much as 24 percent in September compared with September 2013. VIP was down 19 percent in August and 20 percent in July, pacing total market declines from June through August of 3.6 percent, 3.1 percent and 6.1 percent, respectively.
Sterne Agee has slashed its projections for 2014 revenue growth from 3 percent to zero, reflecting mass growth in the “mid- to high-single-digit range” and a decline in VIP of “worse than 20 percent”.
The “lowering of our mass revenue projections is partly reflective of China President Xi’s anti-corruption campaign bleeding into the mass market,” said analyst David Bain.
“China government anti-corruption investigations are moving swiftly and are broad based, and most believe will surpass climax by the end of the year—though we are currently in the thick of it,” he said.
