Shares trading higher on news
Could the historic decline in Macau’s casino market be slowing down? Gross gaming revenues, which plummeted more than 30 percent in December, saw an uptick this month, causing shares to rise in trading on the Hong Kong Stock Exchange.
The gains “could further indicate stabilization” of the marketplace, Bank of America Merrill Lynch analysts led by Billy Ng wrote in a note. However, Bloomberg reported that the numbers still were down 7 percent compared with last January.
The slump began in mid-2014, when Chinese President Xi Jinping, seeking to keep high-roller money from leaving the Mainland, launched a crackdown on money laundering and graft, which are thought to be rife in Macau.
Last month Union Gaming analyst Grant Govertsen, who upgraded the sector to a “buy,” said, “We’ve finally reached the bottom,” with Macau “poised for a rally.”
The Macau Business Daily cited reports that the mass-gambling market in Macau is up, even as VIPs flee to other jurisdictions. The Monetary Authority of Macao says growth in the mass market is creating a “vertical diversified” economy, with “nongaming elements on the way” as well as a “strong base of visitors.”
“The development of mass-market business is timely in acting as a buffer against the shrinkage in the highly volatile VIP business and its impact on Macao’s macroeconomic stability,” the authority noted in a January report. It says the mass market “is likely to surpass the VIP market in terms of its share of total gross gaming receipts.”
Casino operators on notice to target mass-market players and mainstream visitors are already adding more nongaming amenities: Galaxy Entertainment Group Ltd. will recreate New York’s Broadway theater district at its new resort, complete with a 3,000-seat theater and 120 bars and restaurants, according to the company. And Melco Crown plans to open a family entertainment center with Time Warner Inc. that includes a Batman theme.
“Vertical diversification within the tourism sector is a feasible option for future development and economic sustainability,” the authority said in its review. AMCM adds that infrastructure improvements like the new Hong Kong-Zhuhai-Macao Bridge will increase local traffic, which will also create business opportunities “for those who are ready to meet the demand of a more diversified source of cross-border consumer.”
Union Gaming was succinct in its assessment, writing, “It’s time to get back in.”
Since mid-2014, “Macau has been battered by a steady stream of negative events, rumors, and policy changes,” the U.S. research firm wrote in a report last week. “Our view that these issues were under-appreciated was the impetus for (a previous) downgrade. … Even though we have yet to see the first tangible signs of recovery, we believe stabilization is on the horizon, and we think investors should soon start to discount a recovery.”
Foreseeing a rally, Union Gaming advised investors “to get in front of that,” and upgraded all seven Macau concessionaires from “hold” to “buy.”
DailyFinance.com agrees, noting that the Cotai Strip properties “tend to cater to the mass market. The sprawling resorts there feature a great many nongaming activities, with retail outlets and conference facilities bringing in money. Once the Macau casino industry pivots away from VIPs, the overall casino business there will halt its slide and return to its former healthy growth.”
Macau Chief Executive Fernando Chui Sai On on Sunday said the closure of VIP rooms and the mass exodus of junket providers is “normal” and part of an “adjustment phase” for Macau.
And despite the crackdown, total visitors grew 15 percent year-over-year as of November, and the Macau Government Tourist Office announced a record-breaking 31.5 million visitor arrivals in 2014.
