Is this the best time to buy in?
Gross gaming revenues in Macau continued their steady plunge in April, marking the 11th straight month of decline in the world’s No. 1 gaming city, and the lowest level since January 2011.
GGR fell 38.8 percent to 19.2 billion patacas ($2.4 billion) last month amid China’s growing campaign to bust corruption among high-stakes players.
VIP gaming in Macau has been hard-hit by Chinese President Xi Jinping’s hardline stance on graft and China’s economic slowdown. All of this is unfolding even as new megaresorts are being built is on the Cotai Strip.
“Recent data on hotel room rates and occupancy drop in Macau is concerning when we expect to see a 50 percent increase in numbers of rooms over the next 18 months,” Praveen K. Choudhary of Morgan Stanley wrote on April 28. Choudhary downgraded his view to “cautious” as the casino industry showed “no signs of bottoming.”
However, according to Bloomberg, that view is not universal. In Hong Kong trading, despite the April numbers Wynn Macau Ltd. rose 4.8 percent to HK$16.54; Sands China Ltd. gained 3.3 percent; and Galaxy Entertainment Group Ltd. was up 3.1 percent. SJM Holdings Ltd. and MGM China Holdings Ltd. rose 3.1 percent and 2.7 percent respectively, and Melco Crown Entertainment Ltd. gained 1.5 percent.
Analyst Vitaly Umansky of Sanford Bernstein told Bloomberg investors “are really just focused on trying to find stabilization or a bottoming. As long as things aren’t deteriorating, things seemed to be fairly consistent, that’s probably a decent sign from an investor’s perspective.”
April’s numbers were slightly better than the declines for March (39.4 percent) and February (48.6 percent ), according to data from Macau’s Gaming Inspection and Coordination Bureau. In the first four months, revenue fell 37 percent to 83.9 billion patacas.
While Chinese tourism has also declined recently (visitation fell 17.6 percent in March, and hotel occupancy was down 16.1 percent), some analysts say when the new Cotai resorts open with plenty of new mass-market gaming opportunities, visitors will come flocking back. Galaxy Macau’s expansion and its new Broadway at Galaxy Macau will open first, on May 27. But it’s “not going to be a magic bullet,” warned Umansky.
Reuters reported that investors are still bullish on the long-term value of Macau stocks. “What’s the worst that could happen?” asked Matthew Ossolinski, of fund manager Ossolinski Holdings. “Stocks go down before they go up. But they will go up. We are preparing for a 100 percent increase in share prices within the next three years.”
And Michele Matsuda, asset manager at Hong Kong-based SI Management Ltd., says Macau will be even stronger in the wake of its historic slump as it adds more restaurants, retail, entertainment and other mainstream attractions. “It is a better balance of non-gaming revenue and as an investment will be much more balanced going forward,” Matsuda said.
For example, the city’s new St. Regis Hotel will focus on “family and convention services,” according to the South China Morning Post.
Managing Director Joseph Dolp said Macau, like Las Vegas, will eventually benefit from the diversification. “Vegas was always a casino place for a very long time, and then it was diversified to be a destination for families, for shows. And this was the reason for diversification in Macau.
“You cannot see Macau in a time lapse of six months or eight months,” he said. “You need to see Macau in five years, seven years.”
“Now certain stocks are really cheap; other people might have missed it a couple of weeks ago. Now is a good time to see if you want to put capital behind it,” said Matsudo.
But Deutsche Bank analyst Karen Tang pointed out that on a daily basis gaming revenue is still on the slide, and the visitor mix on a recent Labor Day weekend was “mainly low-end.”
In a headline, though the Macau Business Daily suggested the uptick in stocks may be a “Dead Cat Bounce.”
Many observers may not have considered the social fallout if the downturn results in cuts to annual cash handout enjoyed by residents of Macau. Appearing on a Macau radio program last week, Lionel Leong, the city’s Secretary for Economy and Finance, was asked about the program that gave permanent residents MOP9,000 (US$1,127) in 2014.
Leong said the handout is discretionary and corresponds to a government budget surplus. Therefore, declining government revenues could lead to a revision of the policy. According to GGRAsia, “A wholesale cut to the annual handout could result in some amount of social unrest. Whether this could be good or bad for the gaming industry remains to be seen.”
While the value of shares of Macau gaming stocks might have been down, their dividends dived.
MGM China Holdings Ltd. was just the latest casino operator in Macau to reconsider its special dividends due to the city’s unprecedented decline.
According to Bloomberg News, the company will continue semi-annual payments, but is reviewing special dividends paid each March. Jim Murren, chairman and CEO of MGM Resorts International, warned that many people cannot expect special dividends “at the level we’ve had in recent years.”
Revenues have declined for 11 successive months in the world’s dominant gaming hub. Earlier this month, Wynn Resorts Ltd. Chairman Steve Wynn cut his company’s quarterly dividend by two-thirds to 50 cents a share, down from $1.50 in February and $2.50 as recently as October 2014. His Wynn Macau Ltd. subsidiary omitted a final dividend at the end of March.
Moreover, Sands China Ltd., MGM China and Wynn Macau, all U.S.-based operators that have won big in Macau, won’t be able to cover their dividends if they keep them at current levels, said Bloomberg analyst Tim Craighead. MGM China paid a special dividend of $400 million this year, down from $500 million in both 2013 and 2014.
“If other Macau casino operators hold to Steve Wynn’s mantra of not wanting to borrow money to pay dividends, we could see more dividend cuts on top of what’s already happened,” Craighead said.
But in an April conference call with investors, Las Vegas Sands Chairman and CEO Sheldon Adelson said the company hopes to grow its regular dividends by 10 percent over the next three years.
