YoY growth may slow to 5 percent
There could be lean times ahead for Macau’s gaming industry, as it feels the impact of China’s slowing economy and the continuing U.S.-China trade wars.
Zacks Investment Research predicts that Macau’s No. 1 business sector will remain “volatile in the near term,” reports the Macau News Agency. Gross gaming revenues for October dwindled to just 2.6 percent year-on-year, well under the year-to-date growth of 14.3 percent.
“Though gaming revenues from Macau increased for the 27th consecutive month in October, the growth rate has softened since the second quarter,” wrote the firm. “The slowdown remains a concern for the industry in the short run. Speculations over another crackdown on capital outflows by China have kept investors on the edge.” Zacks also says there is “limited upside potential” for gaming stocks.
Moreover, MNA reported, October’s numbers mirrored those of the past few months, indicating that the industry has stalled. Monthly GGR currently is about 70 percent of the industry’s all-time peak in February 2014.
Zacks says Macau faces “gloomy near-term prospects” due to sluggish property values in China, which directly affect the VIP gambler segment. But it’s not all bad news, as that the mass-market segment remains “impressive” in its performance. And mobile and online gaming might propel long-term growth due to the “continued innovation and rampant use of smartphones.”
Union Gaming says October’s lackluster performance could be tied to a visit by Chinese President Xi Jinping, who attended the opening of the Hong Kong-Zhuhai-Macau Bridge. “Any time a high-ranking official visits the region, it has an impact on Macau,” the firm noted.
As for November, growth estimates veer from 1.6 percent to 8 percent year-on-year. Sanford C. Bernstein predicts growth of between 2 percent and 4 percent. Union Gaming is more optimistic, and is looking for monthly revenue growth of up to 8 percent year-on-year.
Analysts surveyed by Bloomberg News say Macau gaming revenue growth will slow from 19 percent in 2017 to 14 percent in 2018, and drop to 5 percent in 2019.
Meanwhile, Business Insider states bluntly that “it’s all going dark again in the gambling capital of the world.” It backed up that grim pronouncement with the Wynn Resorts’ projected earnings, which were 20 percent below Wall Street expectations.
“Wynn noted that Golden Week was very strong in October, but business dropped sharply after that and has remained volatile since then,” said analyst Cameron McKnight of Credit Suisse. “Further, the company noted that it does not believe it is losing share—this means their guidance is either extremely conservative or the market has turned negative in November and December.” Wynn stocks dropped 12 percent the day after the report.
“Of course this would be bad for the entire industry,” McKnight commented. “A slowdown of the kind Wynn is projecting is a flashback to a dark time for the casino world, when a slowing Chinese economy and new government regulation sent casino revenues crashing as much as 50 percent in 2014 and 2015.”
All the more reason for Macau to continue its push to grow more diverse tourism-related segments. The South China Morning Post pointed out that Arnaldo Ho’s planned HK$5 billion (US$638 million) Lisboeta resort in Cotai will not emphasize gaming, or include it at all to start.
“The clientele I’m going for is family travelers,” Ho said. “Hotels survive in Macau even when they do not have a casino.” The resort reportedly will include indoor skydiving, cinemas and a zip-line as well as shops and restaurants.
Oliver Tong, associate director for capital markets at JLL Macau, agrees that Macau is more than its identity as “a paradise only for adults who gamble.”
“We believe there will be more family and young tourists exploring the bridge and arriving in the city,” Tong said. “To make these tourists stay as long as possible, we have to let them know there are activities suitable for them. For example, art exhibitions, culture performances and cozy places to stay for those who come to the city for such activities.”
For 2018, the Macau Government Tourism Office expects tourist arrivals to reach 35 million, up from 32.6 million in 2017. And the city could add another 4,000 hotel rooms before the end of 2021.
At the same time, it’s less than a year before Macau’s Big 6 casino concessionaires face the Big Renewal: the crucial government decisions on whether their gaming concessions will be extended.
First in line is SJM Holdings Ltd., followed by MGM China. Both will see their concessions expire in 2020. According to Carlos Eduardo Coelho of MdME Lawyers in Macau, who spoke to Inside Asian Gaming, the government will likely grant two-year extensions to both SJM and MGM “to bring the term of their respective concession contracts up to par with the terms of the remaining concession contracts.” The concessions held by Galaxy, Wynn and their sub-concessions Sands China and Melco Resorts all expire in 2022.
It’s been said that U.S.-based casino companies may be particularly vulnerable. “The trade war has increased the risks for the U.S. operators,” said Ben Lee of Asian gaming consultancy IGamiX. That American companies hold half the licenses in Macau “already does not sit well with Beijing.”
Macau could also be looking at a formidable rival in Japan, where the legal casino industry is expected to launch by 2025. “I’m mostly worried about Japan—and even the Macau government now seems to be acknowledging that,” Macau lawyer Carlos Lobo told Bloomberg. “I think the Philippines, Vietnam, and South Korea are somewhat complementary to Macau, but Japan is a direct competitor.”
