Macau’s gaming industry ended 2018 with almost MOP302.85 billion (US$37.57 billion) in gross gaming revenues, up 14 percent over the MOP265.74 billion (US$33 billion) generated in 2017.
GGR for December rose 16.6 percent year-on-year to approximately MOP26.47 billion (US$3.283 billion), according to numbers released January 1 by the city’s Gaming Inspection and Coordination Bureau.
The numbers marked a second consecutive year of growth in the world’s top gaming market, and followed an increase of 19.1 percent in full-year 2017, reported GGRAsia. Prior to that, the jurisdiction had endured three straight years of decline, kicked off by a crackdown on graft, corruption and money laundering by the Chinese government that scared off high rollers. In 2016, GGR fell 3.3 percent. In 2015, it fell a staggering 34.3 percent in value. In 2014, GGR was down 2.6 percent year-on-year.
Union Gaming Securities Asia Ltd. said in a note that it expects a “slow start” to the new year, “with the whole of first quarter at +3 percent before picking up into the mid-single digits post the first quarter.”
Also looking at 2019, Jeffries Financial Group said the market will be “characterized by tougher comparisons, the newly implemented smoking ban and a decelerating Chinese economy, all of which we believe will produce mid-single digit growth.” Jeffries added that 2019 is “clouded by uncertainty,” with the toughest comparison this month at 36.4 percent, followed by a much easier 5.7 percent comp in February.
“The macroeconomic environment will be partially influenced by the potential increase in tariffs in March, as well as incremental improvements in U.S./China relations,” the brokerage said, and added that is remains “cautious on Wynn and LVS, given the exposure to the operating environment in the Macau market and uncertain nature of the concession renewal process.” For MGM, it is “more incrementally positive, due to the limited exposure to Macau and a positive domestic operating environment.”
Fitch Ratings, meanwhile, is looking on the bright side. According to CDC Gaming Reports, the rating agency has affirmed Macau’s long-term foreign-currency issuer default rating at “AA” with a stable outlook due to the SAR’s “exceptionally strong” finances and prudent fiscal management.
Fitch said the gaming sector “performed above Fitch’s expectations” in 2018, and added that tourism continues to “exhibit robust growth, supported by various initiatives to streamline applications for mainland travel permits, as well as enhanced cross-border connectivity including the newly opened Hong Kong-Zhuhai-Macau Bridge.”
Fitch noted the rapid growth of mass-market gaming in 2018, “in line with the authorities’ desire to rebalance away from the more volatile VIP segment.” However, the agency observed, “dependence on VIP gamers still remains high at about 55 percent of territory-wide gaming revenue.”
Unlike Jeffries, Fitch expressed no undue anxiety about the upcoming concession retender, saying it doesn’t believe the government “would seek to disrupt the normal business operations of gaming operators, given the potential spill-over effects it could have on fiscal revenues, employment and tourism more broadly.
“However, the agency does expect renewals to be linked to further commitments by gaming operators to support the diversification of the economy into non-gaming entertainment. Meanwhile, resort operators have continued to make significant capital investments across the Cotai strip, which suggests that they do not expect negotiations to adversely impact their medium-term business prospects.”
The consensus on Wall Street is that the days of double-digit growth in Macau could be over for now, CDC added. It first cited Stifel gaming analyst Steve Wieczynski, who said Las Vegas Sands, with the largest market share in Macau among U.S. operators, could benefit if the mass market continues to grow. “Although we cannot declare with full confidence that Las Vegas Sands shares have bottomed, we believe current levels present a compelling point of entry for patient long-term oriented investors,” Wieczynski said.
“Although ongoing U.S.-China trade negotiations and an unsettled global geopolitical picture could work against the shares in the near term, we see nothing out there at this point capable of tempering our long-term enthusiasm on the name,” he added.
Visitation to Macau is up almost 30 percent due in large part to the new Hong Kong-Zhuhai-Macau Bridge, a $20 billion span links Macau to Hong Kong and the Pearl River Delta in Mainland China. Though Union Gaming Group analyst Grant Govertsen says the new tourists are not expected to markedly increase gaming revenues for now, non-gaming visitor spend is on the rise.
“We’re seeing a dynamic where tour groups are utilizing the bridge instead of ferry service to shuttle people between Zhuhai and Hong Kong by way of Macau,” Govertsen said in a research note. “We look for this dynamic to continue for the foreseeable future.” He added that the mass market “continues to grow nicely and underpins the solid fundamentals we continue to see in Macau.”
Maria Helena de Senna Fernandes, director of the Macao Government Tourism Office, agrees that the HKZM Bridge is bringing a lot of day trippers to Macau, who may not necessarily translate into big gaming revenues. Wieczynski and Govertsen both say GGR in Macau could rise between 2 percent and 6 percent in 2019, with mass an increasingly important factor.
“Keep in mind, 2019 is largely expected to be an organic growth year, whereas 2018 benefited from the opening of MGM Cotai in February,” Wieczynski said.
The big unknown remains the concession retender, which will begin in 2020 and continue into 2022, said Macquarie analyst Chad Beynon said the concession retender. “While Macau shares underperformed in 2018 on the back of fears of a VIP slowdown and concession uncertainty on the horizon, a strong fourth quarter result could be a sentiment changer,” he said.
Against this uncertain backdrop is the promise of growing tourism. When the numbers for 2018 are tallied, total visitor arrivals to Macau could reach 35 million, up from 32.6 million in 2017, estimates Senna de Fernandes.
And according to the Macao Tourism Industry Development Master Plan, total visitor arrivals to the city could reach 40 million in 2025.
