Analysts: The worst is over
After a losing streak that lasted more than two years, things are finally looking up in Macau. The long-awaited rebound of the city’s gaming industry, which started in August, continued into September and October and jumped 14 percent in November. Now S&P Global Ratings says next year should be nothing but good news for the world’s premier gaming destination. In 2015, during the worst of the downturn, gaming revenues toppled 34 percent, and the overall economy shrank by one-fifth.
November GGR reached US$2.35 billion, a 14.4 percent increase over November 2015, and the first time casinos reported a double-digit increase since April 2014, before the downturn began in earnest.
Some industry observers were concerned that new resorts along Macau’s Cotai Strip would lead to oversupply in an already stretched market. But the $4.2 billion Wynn Palace and $2.8 billion Sands Parisian—both planned before the start of the epic decline in mid-2014—are helping draw more recreational gamblers to Macau, reports Fortune magazine.
“New casinos will add non-gaming attractions and hotel rooms, both of which should help attract mass-market gamers to Macau,” said S&P analyst Sophie Lin. “Cannibalization could occur between new and existing casinos, but we believe the worst is behind the industry.”
Together, the Wynn Palace and Parisian have added some 4,700 hotel rooms to the city, but occupancy rates have remained strong, hovering in the 80 percent range, S&P reported. Better infrastructure will help bring in more tourists over time; both a new light rail line and the Hong Kong Zhuhai Macau Bridge are expected to be operational by 2019.
Deutsche Bank analyst Karen Tang said the city will see mass GGR grow 12 percent as the premium mass segment also rebounds. “We are positive on Macau’s mass market growth potential especially since industry has finally returned to growth after eight quarters of decline,” said Tang.
“The revenue shift to mass market underpins margin improvement,” agreed Lin, adding that the mass segment will make up half of total gaming revenue in 2017. “Mass-market margins are normally in the range of 30 to 40 percent, compared with about 10 per cent for the VIP segment,” she said.
Christopher Jones of Buckingham Research wrote, “Momentum continues to pick up in Macau. As recently released October visitation data suggests, the market continues to benefit from increased hotel capacity in Cotai, driving increased overnight visitation and increases in overall spend per visitor.”
In a note last month, the team at Sanford C. Bernstein reported that Macau should post an average daily rate of MOP629 million (US$78.7 million) for November, a 16 percent increase over the same period in 2015.
While Cotai has been the focus of development in recent years, Macau’s Big 6 casino concessionaires may next turn to Coloane, described by the World Casino Directory as “a semi-rural place on the southern end of the SAR.” Among the first developments is the 13 Hotel along the Cotai-Coloane border, project of Hong Kong-listed 13 Holdings Ltd., formerly Louis XIII Holdings Ltd.
Secretary for Economy and Finance Lionel Leong Vai Tac recently said the government will take public opinion into consideration before opening Coloane to gaming. The 13—a luxury 200-villa hotel, which is investing $7 million into each residence—is said to be considering a casino component. The hotel will open in 2017.
