The year started with a little good news for Macau’s gross gaming revenues and some analysts are claiming that 2016 could be a year of stabilisation.
In January, casino gross gaming revenue (GGR) continued to slide, down by 21.4 percent year-on-year, according to official data. But in February the decline almost came to a standstill, decreasing by only 0.1 percent in comparison with the same month a year earlier. After 20 consecutive months of year-on-year declines, this pause is being viewed as a glimmer of hope.
February was also boosted by an increase in tourist numbers over the Lunar New Year holiday. Mainland visitation was up 4.3 percent, with total visitation up 4.7 percent. Prospects were better on the stock market too, with shares of Galaxy Entertainment Group Ltd. and Sands China Ltd. seeing some of the biggest gains in Hong Kong in March.
Andrew M. Klebanow, partner at Global Market Advisors LLC, is “cautiously optimistic”. In his opinion, if there is one thing he has learned about the territory’s casino industry, it is that “it is capable of dramatic improvement in a very short amount of time”.
In fact, in 2010, there was a global recession and the construction on the Cotai strip was suspended, yet three years later, “Cotai Central and Galaxy were open and producing prodigious revenues, and plans were being implemented to expand both properties.”
The performance over the past two months may indicate that “Macau’s gaming revenue may have finally turned the corner”, however the policies of the Central Government in China “will continue to hamper the chance for a dramatic turnaround in the next few months”.
For Klebanow, the game changer will be the “collective openings of the properties comprising Cotai II”, which include Wynn Palace, The Parisian and Grand Lisboa Palace. He believes, as each of them starts opening, “interest in visiting Macau will grow throughout east Asia.”
He recalls that the same thing happened in Las Vegas: “In 1993, a succession of new property openings – Luxor, Treasure Island and MGM Grand – turned around a moribund market. This was repeated again in 1998-1999 when Bellagio, Venetian and Mandalay Bay opened, again dramatically driving up visitation and gaming revenue”.
Operators such as Galaxy Entertainment Group Ltd. have opened resorts aimed at tourists and families, as they bet on mass-market gamblers. Sands China Ltd. and Wynn Macau Ltd. are also due to open their billion-dollar projects in the second half of this year.
One might argue that the opening of Melco Crown’s Studio City did not have any impact on the number of visitors, but Klebanow believes the property “opened at the worst possible moment”. Still, he believes Studio City will also “enjoy the fruits of the turnaround”, as new properties in Cotai start to open.
Grant Govertsen, principal and analyst for the Union Gaming Group, is optimistic about the mass market going forward, as “this segment continues to see signs of life”.
Ultimately, he expects the mass market and slot segments to have single digit growth this year. On the other hand, VIP “remains under pressure” and that is not likely to change over the course of 2016. “In fact, we are forecasting VIP gross gaming revenue to decline almost 20 percent in 2016,” he says.
As for his expectations for 2016 as a whole, he says it’s “a mixed-bag”, as mass market should grow, representing “a nice change” from last year, but VIP will not. “VIP, despite new supply coming online, is likely to see persistent weakness,” he says.
Even so, Mr Govertsen is “excited” to see the new Wynn Palace open, as “it has the potential to grow the market”, particularly for high-end visitors.
“Investors will be keenly focused on its early performance to better judge whether or not new supply can once again drive demand,” he says.
In March, the Macau market got off to a “slow start”, according to a note from Cameron McKnight, Daniel Adam and Robert Shore of brokerage Wells Fargo Securities LLC.
“It’s possible revenues are trending below our -7 percent to -11 percent estimate for March,” they said, adding it was probably “too early to call stabilisation” in the Macau market. Still, several brokerages claim the average daily rate of casino gross gaming revenue (GGR) generated in Macau increased sequentially in the second week of March, citing unofficial industry returns.
