Analysts predicted 9.5 percent YOY drop
Gross gaming revenue in Macau fell 8.5 percent on a year-on-year basis for the month of June. Why is everyone so cheerful about it?
It’s all relative. After 25 straight months of gaming revenue decline, including many months in which GGR decreased by double digits, a slight loss that’s better than analysts forecast is actually good news. According to China Travel News, seven analysts surveyed by Bloomberg predicted a 9.5 percent drop for the month.
“The mass market quietly continues to show modest growth—the market is heading into the right direction as we head into the openings of Wynn Palace and Parisian,” said Grant Govertsen of Union Gaming Group LLC. Macau gaming revenue could really bounce back starting in September, with the opening of new resorts on the Cotai Strip. Wynn Macau Ltd.’s $4.1 billion Wynn Palace is scheduled to debut August 22, after several frustrating delays. And Sands China Ltd.’s $2.7 billion Parisian Macao is expected to open in September.
Since mid-2014, Macau has been on order from the Mainland government of Xi Jinping to reduce its reliance on gaming, which contributes about 80 percent of the city’s tax revenue. To that end, the city government has raised the entry threshold for junket promoters, banned proxy bets, and also plans new, stricter penalties for violations of gaming law.
Deutsche Bank analyst Karen Tang, acknowledging both the year-on-year drop for June and a corresponding drop in Macau stock prices, wrote that in 2014 and 2015, “Macau stocks had short-term summer rallies in July-August as GGR picked up over the summer holiday.
“With the Euro Cup ending and northern summer holidays beginning, we forecast a summer pick-up where gross gaming revenue year-on-year growth may finally turn positive by August/September,” said Tang. She added that “rally” does not mean “recovery,” the Asia Gaming Brief reported.
“We are not touting the summer pick-up as a sign of cyclical recovery,” wrote Tang. “But as seasonality is more prominent this year, we think a strong summer can already give a boost to investor sentiments.”
Macauhub.com, citing figures from the Office of the Secretary for Economy and Finance, reported that gross revenues from casinos from the mass market represented 53.1 percent of the total in the first half of 2016, an increase of 10 percentage points compared to 43.1 percent in the same period during 2015. Gross revenues from VIPs fell 17.3 percent year- on-year in the first half, while the mass market contracted by just 3.6 percent, AGB added.
Brokerage Sanford C. Bernstein Ltd. points out that Macau has seen growth in the number of high rollers directly managed by the house rather than through a junket. It added that this might also expose Macau operators to greater credit risk. “We believe the recent expansion of casino receivables relative to gaming revenues has more to do with the growing proportion of the direct VIP business as a result of a shaper decline in junket VIP,” wrote analysts Vitaly Umansky, Clifford Kurz and Simon Zhang. “Even so, Macau casino operators appear to be managing the risks prudently and the direct VIP business remains a more profitable business relative to junket VIP despite higher provisions for bad debt.”
