DB’s Santarelli: September should be solid too
Macau’s gaming industry posted strong results for the month of August, with gross gaming revenues up 17 percent over 2017 to $3.3 billion. It kicks off the third year of the Macau rally and marks 25 straight months since the jurisdiction began to recover from a two-year recession (2014-2016) that had some doomsayers calling the jurisdiction down for the count.
The latest figures have more than disproven the pessimists, and also eased recent concerns that Macau’s No. 1 industry could be shaken by a sluggish Chinese economy and the specter of trade disputes with the United States.
“Given the solid result and favorable visa revisions in late August, we think sentiment towards Macau is likely to begin to improve as we head into year-end,” Deutsche Bank gaming analyst Carlo Santarelli told investors in a research note. “Both July and August have outperformed sequential expectations. We expect September to maintain this momentum.”
Credit Suisse analyst Cameron McKnight agrees that Macau has benefited from those new visa requirements, which allow millions of Mainland Chinese to more easily visit Macau and Hong Kong, GGRAsia reported.
“We think it signals the Pearl River Delta integration is real and a genuine long-term secular driver,” McKnight said. Nevertheless, he hedged his bets by saying, “We see a very positive long-term secular story, but potential macro, policy and geopolitical risks keep us on the sidelines.”
Grant Govertsen of Union Gaming sounded bullish. “The reality is that the absolute level of gross gaming revenue this August was the highest of the entire year, and only second to February, which included Chinese New Year. This is cause for optimism as trends have accelerated into the end of summer. Even more importantly, we continue to believe that mass market remains the strongest segment.”
Govertsen told investors that “business remains good and is maintaining a mid-teens trajectory, despite fears to the contrary. To date, there has been no negative reaction (or even precautions) taken by VIP customers as it relates to trade wars and the potential impacts.”
Inside Asian Gaming cited a report by Sanford C. Bernstein analysts who said growth in Macau will continue on the back of mass and premium mass customers drawn by new hotel and integrated resorts and the completion of infrastructure projects including the Hong Kong-Zhuhai-Macau Bridge.
“Mass should continue to show modest growth as overnight visitation grows, helped by new supply expansion and improved transport,” the Bernstein note said. “Average spend should also increase as premium mass continues to outperform base mass. Mass has been largely driven by increasing overnight visitation and increase in average spend per visitor, supported by modest base mass growth.
“The new supply that came on line in 2015-2016 has helped drive overnight visitation as Macau hotel occupancy rates have strongly rebounded with occupancy rate around 90 percent,” the note continued. “Consequently, Mass GGR per visitor is up nearly 12 percent year-on-year” in the first half of 2018. “During the short to medium term, these drivers will likely create headwinds for GGR, leading to deceleration in growth. However, over the long run, the improvements in transportation infrastructure and the opening and ramp up of new capacity support long-term growth in mass (and premium mass, in particular)—the execution of a supply-driven market.
“With strong premium consumer growth in China forecasted over the long-run, Macau’s long-term growth story remains intact,” the note concluded.
