“No guarantees” the effort is over
Macau casino operators should not assume that the anti-corruption campaign that sparked a 26-month downturn in the city’s casino industry is over.
According to a memo from investment brokerage Sanford C. Bernstein, though the crackdown by Beijing seems to be easing and VIP players have begun to return, “There is no guarantee that the anti-corruption campaign continues to soften; it could intensify again.
“We have repeatedly highlighted the policy risks that can create headwinds for Macau’s gaming sector,” said analysts Vitaly Umansky, Zhen Gong and Yang Xie. “Over the past year, the anti-corruption campaign appears to be moderating. However, in March and April 2017, we noticed a small spike in anti-corruption related activity. It is too early to call this a new trend, but it could indicate slowing of the moderation, and may in fact be a pick-up in activity, perhaps as we head into the National People’s Congress meeting this autumn.”
The analyst team added, “A step-change may be evident in 2018 after the November 2017 Communist Party and Chinese government reshuffle.”
Earlier this month it was announced that facial recognition technology would soon be added to automated teller machines in Macau, targeting those who hold China UnionPay bank cards, reported GGRAsia. Some analysts say it means the government wants to stem the flow of money from the mainland to Macau.
Despite the warning from Bernstein, Christopher Jones of the Buckingham Research Group said in a note that he’s increased his year-on-year growth forecast for May from a previous high of 16 percent to between 18 and 20 percent, “based on improving trends versus last week and better than expected performance during Golden Week” at the start of May. David Bain of Aegis Capital also has revised his estimate for the month from a range of 15 percent to 19 percent to 17 percent to 20 percent.
And according to the Asia Times, credit rating agency Fitch forecasts that gaming revenue will grow by 12 percent for the full year to US$31 billion. That’s up from US$28 billion last year, but far below Macau’s all-time high of US$45 billion in 2013.
“The anti-corruption campaign has seen a moderation in the last few months, and there’s also an element of fatigue,” said Bernstein’s Umansky. “High net-worth individuals are sitting back and thinking, ‘If I haven’t been affected by now, then I’m probably OK.’”
Moving forward, the government of Macau is likely to extend the licenses of Big 6 concessionaires SJM and MGM licenses for 2 more years, according to Union Gaming Asia Securities. The city’s concessions come with a 20-year expiration date, so starting in 2020, SJM Holdings and MGM China will be up for renewal, followed by Galaxy Entertainment, Sands China, Wynn Macau and Melco Resorts Entertainment in 2022, reported CalvinAyre.com.
“The government also has the option—at its own discretion—to extend the licenses by one year at a time for up to five times; this is without the need for new legislation,” said Union Gaming analyst Grant Govertsen. “We would not be surprised if it is the next government of Macau that finalizes the renewal process, which could very well include unilaterally extending the licenses by a year or two while the legislature redrafts the gaming law post-2020.”
