Analysts differ on prospects for 2017
Macau’s two-year recession reached rock-bottom in June 2016, say analysts, most of whom are now heralding a new day in the world’s top gaming jurisdiction.
According to the Macau Daily Times, most observers agree the downturn that began in mid-2014 and started to ease last August Macau is now over. December was the fifth straight month of year-on-year GGR growth, with a gain of 8 percent compared to December 2015. Even so, GGR for the year was 3.3 percent lower than in 2015 at around MOP223 billion (US$27.9 billion), making 2016 the third straight year of lower revenues, despite a 10 percent gain between the third and fourth quarters, the Times reported.
Union Gaming analyst Grant Govertsen was among those who pinpointed June as the “low water mark of the multi-year downturn.” December’s average daily revenue of MOP639 million (US$80 million) represents a rise of 21 percent compared to June’s daily average of MOP529 million (US$66 million).
“With more modest increases in supply in 2017,” Govertsen added, “we remain upbeat about the growth prospects next year.”
While most analysts agree the city is on the road to recovery, they disagree about the scope of the recovery in the new year. Analysts at Morgan Stanley, Sanford Bernstein and Buckingham Research Group all are optimistic, estimating GGR will grow by 10 percent, 8 percent and 6 percent to 8 percent respectively.
But Wells Fargo’s Cameron McKnight is less impressed, and predicts there will not be “prolonged, above-trend growth” since December’s 5.5 percent month-on-month growth was lower than the five year average of 6.9 percent.
“In our view, recent stabilization and some market growth has been driven by Chinese monetary stimulus and the re-inflation of the Chinese housing bubble—influences we think won’t drive prolonged, above-trend growth,” he wrote.
Nomura analysts, meanwhile, are looking for an immediate spike. They expect January GGR to rise 9 percent over last year, reported TheStreet.com; the team originally predicted more modest growth of 6 percent.
Macau Chief Executive Fernando Chui Sai On is optimistic too. “After going through a stage of economic adjustment over the last two years, we are confident that the economy will recover and show positive growth in 2017,” Chui said.
As the city continues its mission to diversify the economy—a directive that came down in 2014 from Chinese President Xi Jinping—a local scholar recommends a lower tax rate on VIP gaming revenue to keep the local casino industry competitive in Asia.
Wang Changbin of the Gaming Teaching and Research Centre at Macao Polytechnic told GGRAsia the Macau “could look into Singapore’s model.” In that city-state, the government city taxes mass-market play at 15 percent and VIP play at 5 percent, with a 7 percent goods and services tax added on in both cases. That’s compared to Macau’s effective 39 percent tax on GGR.
“VIP play faces much more competition from other nearby jurisdictions,” Wang said. “Chinese VIP players are highly mobile; they can head anywhere in the world” and will travel to get better deals.
“Considering the existing tax rate in Macau, the VIP sector here is actually at a disadvantage” compared to other Asian jurisdictions, Wang said.
Kwok Chi Chung, president of Macau’s Association of Gaming and Entertainment Promoters, agrees. “For junkets, we can have more room for profit under a model like this with a more accommodating tax rate. This can attract more junkets to the Macau VIP segment, and in turn they can attract more investors.”
Daiwa Securities Group warns that Macau’s “prevailing policy environment,” including measures to stem the use of ATM cards, could threaten growth in the gaming industry this year.“To us, it will not only have a broader impact on overall gaming patron sentiment, but also poses an overhang to the Street’s widely-expected growth trajectory in 2017, which has seen significant upward revisions over the past two to three months,” wrote analysts Jamie Soo, Adrian Chan and Jennifer Wu.
