Macau 2015 to be a year of two halves, Bloomberg

Published in: Latest Intelligence As Macau limps towards the end of what promises to be the worst year for revenue since the gambling market opened up in the early 2000s, analysts are struggling to predict what may lie in store for 2015.
The general consensus is that the early part of the year is likely to bring little respite from the contraction that began in June. It’s on what happens beyond, that views begin to diverge.
For Bloomberg senior analyst for gaming and lodging and director of Asian research, Tim Craighead, next year will again be a year of two halves -- through a mirror image.
Speaking at the Bloomberg Intelligence annual luncheon at the Conrad hotel in Hong Kong, Craighead charted the litany of factors that reversed an early surge in revenue in 2014 into the current contraction. Casino operator stocks are now some 40 percent lower and gaming revenue down 20 percent year-to-date.
A prolonged drought of new resorts, tough year-on-year comparisons, a shift from VIP to the mass market, Beijing’s “anti-extravagance” campaign, Union Pay restrictions, border restrictions, the smoking ban and, finally, the Occupy Central protests in Hong Kong have all contributed to the downturn. 
As revenue has gone south, operating costs have mounted, with wages in the construction industry increasing by 8.86 percent and in hotels by 18.5 percent in 2014.
Without a doubt, the territory’s high-rollers have been the ones who are conspicuously absent in Macau.
Craighead said gaming can be seen as the ultimate indication of Chinese discretionary spending and many wealthy Chinese right now want to avoid being seen to be spending extravagantly. VIP revenue was down 19.6 percent in Q3,14, he said.
Among the operators, Melco Crown Entertainment fared the worst when it comes to the VIP market, with a decline in revenue in each of the first three quarters, accelerating to a 27.1 percent drop in Q3.
Sands China started the year with 10.3 percent growth in its VIP segment, but that fell off in Q2 and the 31.1 percent drop in Q3 was the worst among the six operators for that particular quarter. Its performance has been driven in part by a decision to reduce VIP tables by about 20 percent during the period.
Only Galaxy Entertainment has managed to maintain growth in VIP revenue with a 4.1 percent gain in Q3, down from a 27.4 percent increase in Q2.
However, the decay has now also reached the mass market. From a range of 30 - 45 percent growth over the last four years, Baccarat revenue dropped 16 percent in Q314.
The drop in mass revenue has raised alarm bells as the sector now accounts for an average of 67 percent of total profits for the casino companies and about 40 percent of revenue. For Sands China the figure runs as high as 79 percent of profit and 54 percent of revenue.
In the mass segment, Wynn Macau has been the best performer with 36.5 percent growth in Q3, down from 43.5 percent in Q2 and 23.7 percent in Q1.
SJM Holding’s mass market performance severely lagged its peers in Q3, eking out growth of just 3.1 percent.
However, Craighead is in the camp of those who expect that the new supply that is scheduled to begin coming online next year will be a major driver of growth.
Macau has seen the longest period to date without any new supply. Once Galaxy Phase 2, Macao Studio City and the Parisian come online in H215, this will stimulate new demand, he said.
Potentially, there could be a 27 percent increase in tables in 2015 (total of 1,550), a 38 percent increase in slots (5,000), and a 42 percent increase in hotel rooms (7,050). He also pointed out these openings would coincide with kinder year-on-year comparisons on a monthly revenue basis later on in 2015, helping the overall picture.
In the past, average year-on-year revenue growth has surged during the six quarters following the launch of new casinos. The City of Dreams opening boosted revenue 94 percent for Melco Crown Entertainment; Galaxy saw a 105 percent increase after the launch of Galaxy Macau, and Sands China experienced a 38 percent rise post the opening of Sands Cotai Central.
Another bright spot is that visitation growth has remained strong, although daytrippers are now outstripping overnighters, a possible reason for the drop in average table revenue despite the growth in visitors.
Overall, Craighead saw near term challenges continuing into 2015, but long term opportunities for the market. Valuations are currently below the five-year average. Stocks peaked at 18x EBITDA in early 2014, and the group average in mid-December is 11.6x. China’s economic stimulation should start to improve and the focus on corruption will likely diminish. Also those steep 40 percent GGR comparisons from a year ago will become more favorable towards the middle of the year.
2014 was a year of two halves, and so too could be 2015.
 

Bet365 awaits AUSTRAC investigation, results up for 23/24 financial year
_2025-01-07Paradise Ent. and Tangiamo sign global distribution agreements
_2025-01-07Most content removal requests target online gambling: Malaysia comms authority
_2025-01-07Clark International Airport welcomes 2.4M passengers in 2024, mostly international
_2025-01-07Nearly 60 workers fight their way out of sanctioned Cambodian casino complex
_2025-01-07Record $17.7 million Mark Six jackpot in Hong Kong split by two winners
_2025-01-07

Open in new window
View settings