Mid-term review a “positive” for operators
May got off to a promising start in Macau, according to analysts from Sanford Bernstein.
Gross gaming revenue for the first week came in at MOP 6.1 billion (US$762.8 million), implying an ADR of MOP 762 million, up from MOP 607 million the week before, according to the Asia Gaming Brief.
Assuming an ADR of 550-570 million for the rest of May, Bernstein expects GGR of MOP 18.7 to MOP 19.2 billion, for a year-on-year decline of 6 percent to 8 percent, an improvement over April’s GGR, which dropped 9.5 per cent year-on-year to 17.3 billion patacas, reported theSouth China Morning Post.
Galaxy Entertainment Chairman Lui Che-woo says the industry is slowing turning in the right direction after an almost two-year recession and 23 consecutive months of declining revenues.
Revenues “have stabilized,” Lui told the Post. “I believe this means we can say [the market] has already bottomed out.” In February, Galaxy reported a 60 percent drop in profit for 2015. At that time, Lui said it was “too early to call a bottom to the market, especially given the current volatile macroeconomic environment.” His son, Galaxy Deputy Chairman Francis Lui Yiu-tung, said business was “not bad” during the Labor Day holiday from April 30 to May 2.
The Bernstein analysts say Macau’s gaming industry will remain volatile for the near term, but applaud the gradual move from VIP to mass, as mandated by the Chinese government, reports the Macau Daily Times. “Although unlikely to disappear as some fear, the VIP model is structurally challenged by China’s anti-corruption campaign dampening high-end spend, junket liquidity stress and junkets facing potential regulatory headwinds in the near term,” said the brokerage. It added that “mass will be the driver of rejuvenated growth beginning in 2016 and continuing through the rest of the decade—the execution of a supply-driven market.”
Meanwhile, according to AGB, the long-awaited mid-term review of the gaming industry, under way since this time last year, has been released, and it’s a “positive for operators.” But it’s no guarantee the six concessions will be renewed, said Macau’s Secretary for Economy and Finance Lionel Leong; the government is chiefly interested in seeing the industry pivot toward mass gaming and more mainstream attractions to diversify the economy and make it less dependent on casinos.
“In the past we only looked at gaming revenue,” said Leong during a press conference. “We cannot only depend on a small number of customers [VIP players] to generate most of the revenue. We need to have new clients.”
Sands China Ltd. responded to the cue, issuing a statement that the company is “committed to contributing to the development of Macau into a world center of tourism and leisure and to contributing to the successful diversification of Macau.”
Union Gaming agreed that the report was largely positive, and “indicates that the operators have fulfilled their contract requirements and have made positive contributions to the community.”
Paulo Martins Chan, director of the Gaming Inspection and Coordination Bureau, said the junket sector has played “a positive role,” but remains “problematic” and needs a “stronger regulatory effort in order to enable a healthy and orderly development of the industry.”
With more staffing, Union Gaming noted, the DICJ could apply more pressure to the junket industry, as well as proxy betting and under-the-table betting. “This represents incremental risk for the junket VIP segment,” said Union Gaming. Bernstein analysts said phone bets in Macau only account for about 5 percent of VIP volume in the territory.
“To our knowledge, it is likely a self-policed policy,” they wrote. “The onus is on casino operators to enforce the implementation and to ask junkets/players in VIP rooms to refrain from using phones by gaming tables.”
Analyst Ben Lee of Macau-based gaming consultancy iGamix told the Times any losses associated with the crackdown on proxy bets “will probably be minimal.”
“The reason for the ban has been to tighten something that has been a bit of a gray area in the past,” he said. “Again, the impact will be minimal since most of this activity has already been moved offshore to other areas such as the Philippines and Cambodia.”
MGM China CEO Grant Bowie concurred. “Whatever happens to the notional proxy, it will probably be yet another continuation of pressure for the junkets themselves, but it probably is not going to be that significant for any of the operators.”
To bolster compliance, reports GGRAsia, betting shops in Macau have started to introduce China UnionPay Co. Ltd. bank card payment terminals. They require holders of China-issued cards to scan identity documents before purchases can be confirmed. Macau also plans to raise capital requirements for junkets and according to Bloomberg News, is preparing to set up a credit database “to weed out risky gamblers as it increases oversight of the business that brings in high-stakes players to the local casinos.”
The government is also considering a blacklist of high-risk players, said Fong Man Chong, coordinator of the Personal Data Protection Office, reported the Macau Business Daily. “How such a database should be established, what should be mandated as principles and guidelines, who would have access to the data; all of these need to be studied in depth,” he said.
Fitch Ratings reports that MGM China should generate around $600 million of EBITDA in 2017. The ratings agency said that includes about $200 million EBITDA at MGM Cotai and 20 percent EBITDA decline at MGM Macau. Fitch gave MGM China a BB rating with a stable outlook. It also upgraded MGM Resort International’s IDR to BB from B+, with a stable rating outlook.
In other Macau news, Wynn Resorts Ltd. plans to open its new Wynn Palace in the third quarter of 2016, reported the Macau Business Daily.
