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UPDATED: Macau’s gambling revenue reaches 5-year-low in June

Macau’s gambling revenue fell to a five-year low in June of 36.2 percent, taking the fall in revenues to 13 straight months since China’s crackdown on corruption took off.

Gambling revenue fell to 17.4 billion patacas ($2.18 billion), according to data released by the Macau government, the lowest revenue figure since 2010 and compares with a 37 percent drop in May when revenue was MOP20.346 billion.

Analysts at Sanford Bernstein said although 2015 will be a challenging year in Macau, “we view the Macau gaming industry as a secular growth story driven by the paradigm shift from VIP to Mass.”

The analysts said they expect to see a bottoming by the latter part of the year with rejuvenated growth beginning in 2016.  

A big risk, however, lies in a deterioration of China's economy such as GDP forecast erosion, loss of stock markets indexes, and a decrease in consumer confidence.

According to Morgan Stanley analysts investors should brace themselves for more disappointments ahead.

“We believe that three disappointments over the next six to 12 months should keep investors at bay and push long standing investors to capitulate,” the analysts said.

The factors being the risk of the VIP market - still 52 percent of gross gaming revenue - declining further in 15H2 due to junkets closing down; fixed and rising staff cost, and rising promotional allowance; and multiple contraction risk.

“Despite Macau stocks falling by more than 50% from the peak, they are trading at 13-15xEV/EBITDA on 2015/16 and thus in the event of slower future growth, no support from dividend,and negative earnings revisions, we see multiples declining further.”

The MS analysts said that the relaxation of transit visa, which allows transit passengers to stay for 7 days  instead of 5 days and allows them to come twice in a month instead of once in 60 days is not “a sign of relaxing regulation, nor will it help premium mass/VIP revenue to grow.”

“First of all, the negative impact on high end visitors were felt in 2014 because they were coming illegally and used to cancel onward journeys.That restriction still remains.”

Regarding the revisions to the smoking rule that would extend the ban, MS analysts say they expect VIP and mass revenue to decline by another 10 percent. 

“MPEL with highest exposure of smoking areas in casino would be the worst impacted, in our view.”

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