Stocks in Macau casino operators have been in a swoon amid fears that VIP gaming growth is slowing and may begin to fall, and analysts are cutting their revenue forecasts for the rest of the year.
Deutsche Bank has lowered its marketwide revenue projection for 2014 from 15 percent to 12 percent on the belief that China’s decelerating economy is taking its toll on the territory’s high end. The firm is forecasting VIP revenue growth of 3 percent, down from 7 percent, implying a 1 percent decline in the second half. The bank said, however, that it remains positive on the mass market, which it expects to grow 30 percent year on year, although that could change, too, if fears of a broad crackdown on illicit UnionPay cash card transactions prove warranted.
Shares of the six Hong Kong-listed operators have lost 20 percent of their value since January as it’s become increasingly clear that first-half performance will not measure up to 2013’s boom. A recent spate of negative news headlines—ranging from the UnionPay scandal to junket arrests to possible visa restrictions to a looming prohibition on smoking in the casinos—has added to the bearish sentiment.
Wells Fargo says the current macro environment in China remains mixed and Macau could feel the fallout. “Specifically, property markets remain soft, with surveyed new home price growth decelerating, likely driven by tighter credit and higher supply,” wrote analyst Cameron McKnight. “We believe credit growth and a healthy housing market are important economic indicators in China, and a further slowdown could weigh on Macau.” The bank has lowered its growth forecast for 2014 from 13 percent to 11 percent.
Analysts and industry watchers are still assessing the impact of an announcement last week by the Macau Monetary Authority that it will restrict the use of China’s popular state-owned UnionPay card and has ordered jewelry shops and pawnshops that operate on casino floors to remove their UnionPay card terminals by July 1.
The change may hit the mass-market boom if mainland gamblers find they can no longer use the card to evade China’s strict currency control through withdrawals disguised as purchases of watches and jewelry that are made to appear by various means—unregistered card-swipe devices being one of them—as if they had occurred within China.
It has been estimated in news reports that the swipe devices, which have been smuggled out of China into Macau in large numbers, may have allowed the yuan equivalent of US$6.4 billion to leak out of China last year. Reports also have implicated state-owned banks and a mainland-based payments processor as facilitators of the illicit transactions.
Restrictions on UnionPay use will make getting cash “less convenient” for the cash players who made up the majority of Macau’s 29.3 million annual visitors in 2013, as they will have to obtain funds either away from casino floors or completely outside, analyst Grant Govertsen of Union Gaming Group Macau wrote in a client note.
Restrictions could also limit the amount of funds available to VIPs to their pre-set level of junket credit by cutting off their options to obtain additional cash during their trips, said one highly placed casino executive.
