Fitch: Macau Gaming Weakness to Persist Through 1H15

Fitch Ratings predicts Macau gaming revenue growth for 2014 at close to zero and a negative one percent for 2015 as persistent weakness in the VIP business spills over to the premium mass segment.
In its latest research report, the ratings agency predicts weakness in Macau may extend through H1, 2015 until Galaxy Entertainment and Melco Crown open the Galaxy Macau expansion and Studio City, respectively.
In the foreseeable future the analysts are modelling largely flat sequential growth, with declines of between 15 percent and 20 percent YoY through Q1, 2015 and about a 5 percent YoY decline in Q2, 2015.
But the outlook improves later in 2015 with a sequential 5 percent to 8 percent mass growth and 2 percent to 4 percent VIP growth, accelerating by year's end.
The 2015 forecast "may prove overly conservative" if the VIP segment recovers to recent historical averages of around MOP18 billion ($2.21 billion) per month since 2011 compared with about MOP15 billion since June 2014.
But a VIP bounce was seen as unlikely given reduced VIP gaming positions relative to 2013 and earlier in 2014. Fitch pointed to Las Vegas Sands' VIP positions, which were down 20 percent in Q3,2014 on a YOY basis.
Fitch analysts also said gaming expansion in Philippines may draw some VIP business away from Macau.
A smoking ban in the casinos is also expected to "shave off" one to two percent from growth.
But the analysts said they remained positive on the outlook for Macau. "We continue to hold that Macau and the greater China market remain under-penetrated," the analysts said.
Gaming revenue growth will be driven by new supply and infrastructure development with the Chinese economy continuing to grow, albeit at a slower rate of 6.8 percent in 2015 and 6.5 percent in 2016. This Fitch says will "anchor" mass market demand.
Fitch says margins may come under pressure amid increasing labour costs and an intensifying promotional environment in the premium mass segment over Q4,14. But those margins are expected to benefit with a mix shift toward mass.