Even mass-market leader Sands China is feeling the effects of the softness that has characterized much of Macau’s gaming market in 2019.
In its third-quarter earnings call notable for the return of Chairman and CEO Sheldon Adelson, who has been battling cancer, parent Las Vegas Sands reported a 3.6 percent decline in revenues to $3.25 billion. It was largely Macau that was to blame. Revenue from the Chinese casino hub, the source of 65 percent of LVS’ total revenues, was down 2 percent to $2.08 billion, and that was enough to offset gains of 7 percent and 3.5 percent, respectively, in the company’s Las Vegas and Singapore markets.
“The numbers speak for themselves in Macau, it’s been challenging there,” LVS President Rob Goldstein said. “We’ve been doing this a long time, and we’ve watched the market ebb and flow. We’re in a difficult time period.”
The world’s largest gambling market has been beset by double-digit declines in VIP revenue, the super-high-stakes sector that no longer dominates the market as it once did, though it still accounts for more than half the market’s aggregate annual win. The reasons aren’t entirely clear, although experts point to concerns about the pace of economic growth in China, coupled with trade tensions with the U.S., as the main culprits.
Despite this, visitation to Macau has been strong at more than 30 million through September, and hotel occupancy has averaged 91.6 percent, up 2 percent over 2018. But unlike recent years it isn’t translating onto the gaming floors, where the combined win was down 1.7 percent over the same period compared with last year.
This has been especially telling at SJM Holdings, once the market share leader on the strength of its VIP play. SJM suffered a 3.2 percent decline in third-quarter gaming revenue to HK$8 billion (US$1 billion) as VIP win plunged 42.6 percent. Mass-market win was up 12 percent, but as the only one of the territory’s six operators without a resort on Cotai, the company hasn’t been able to fully exploit this much larger customer base. Its share of the total mass market hovers currently below 16 percent.
“SJM continues to suffer from the lack of presence in Cotai and continues to lose overall market share on a y/y and q/q basis,” analysts at brokerage Sanford Bernstein noted recently.
From a share price perspective, Morgan Stanley’s view of Hong Kong-listed SJM is that its current near-term weakness will evolve into medium-term upside when Grand Lisboa Palace, its long-awaited Cotai resort, opens in the latter part of next year.
Sands China, which leads the mass market on the strength of the scale and diversity of its Cotai properties, continues to ramp up its investment there with high-profile projects like The Londoner Macao, a $1.35 billion renovation and re-theming of its Sands Cotai Central casino-hotel complex.
Not surprisingly, the company remains upbeat on Macau’s longer-term prospects as an all-encompassing destination for a Chinese middle-class that is growing steadily wealthier and more mobile. Analysts tend to agree.
“While we think the next few months could be volatile, given macro, geopolitical and licensing risks, we would note our credit indicators point to a rebound early next year,” said Ben Combs of Credit Suisse.
Deutsche Bank’s Carlos Santarelli added, “We continue to believe Las Vegas Sands is trading at the low end of a well-defined trading range, with the potential for multiple expansion should mass-market trends remain firm and Las Vegas Sands’ mass-market-centric model prove resilient, until the VIP segment regains its footing.”
Adelson, who has not participated in the company’s conference calls for a year, read from a statement, saying, “I feel good, I’m very happy to be here with Rob, (CFO) Patrick (Dumont) and the team.”
The 86-year-old billionaire said he’s been gratified by the good wishes he’s received during his illness.
“I am extremely touched by all the calls and e-mails. It has been remarkable to hear from so many people, including many of you joining us today. It certainly means a lot.”
