Some analysts still cautious
Gaming revenues in Macau were up 14.4 percent in November to MOP 18.8 billion (US$2.35 billion), the fourth straight month of year-on-year revenue growth after a decline that endured more than two years. November was also the first double-digit growth in 31 months, reported Forbes.
“November was a great month, no two ways about it,” said J.P. Morgan analysts DS Kim and Sean Zhuang. Average daily revenue for the period was “quite impressive” at MOP626 million, as November usually sees a dip after the Golden Week holiday that kicks off October. In fact, the analysts wrote in an investor note, November did better than the typically flush month of May.
Kim and Zhuang credited the growth primarily to a 15 percent jump in VIP revenue; analysts had estimated a 5 percent increase. The boost can also be attributed to a stronger Chinese economy, improved junket liquidity, the opening of new resorts on Cotai and an easing of President Xi Jinping’s anti-corruption campaign, they said.
Fitch Ratings Senior Director Alex Bumazhny agreed that Macau “appears poised for a long recovery.
“Macau gaming, now firmly at the bottom of the cycle, has better long-term prospects given investments in new supply, improvements in mass market indicators and under-penetration of gaming throughout the rest of Asia,” Bumazhny wrote.
Wells Fargo Securities analyst Cameron McKnight is less buoyant and has declared himself “neutral” on the market. McKnight says the boost has been driven in part by “Chinese monetary stimulus and re-inflation of the Chinese housing bubble, influences we think won’t drive prolonged, above-trend growth.”
Christopher Jones of Buckingham Research Group takes the upbeat view, writing that November GGR performance “should go down as another signal to investors that the recovery in Macau gaming revenues is not a temporary event.
“Going into this summer’s strong performance, there was no shortage of prognosticators predicting that Macau’s lift in performance was nothing more than a blip in VIP volume,” Jones continued. “And that excess room and gaming capacity would force operators to drive margins down with increasingly aggressive marketing campaigns. Thus far, there is little evidence to suggest that this has happened, with increasingly stronger GGR performance all but confirming that the market did desperately need incremental hotel capacity.”
He is joined in his optimism by S&P credit analyst Sophie Lin. “The opening and ramping up of new casinos, better infrastructure connecting Macau with mainland China, and stabilizing regulations are the major factors that will fuel a rebound in the gaming industry,” Lin said.
But casino shares dropped in Hong Kong trading earlier this month after Macau TDM reported the city may require inbound travelers to disclose cash holdings of more than MOP 120,000 (US$15,000) when they arrive in the country.
Bloomberg News reported that Sands China fell 4 percent on the news for the biggest decline in 11 weeks. Galaxy Entertainment dropped 4.7 percent and Wynn Macau Ltd. was down 4.5 percent, while the benchmark Hang Seng Index fell 1.4 percent.
“The report is throwing cold water on reviving sentiment for the casino industry,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “After a big rally of late, gaming stocks were in overbought territory anyways.”
Morgan Stanley’s Kim told investors to jump in. “Negative knee-jerk reaction on this headline would provide an even better buying opportunity. The does not have anything to do with China’s capital control, nor does it target the gaming industry.”
