IAG November 2014 - page 4

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November2014
4
EDITORIAL
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IsMassHeadedSouthToo?
M
acaumade the record books inOctober. Themarket’s fifth straightmonth of
declining year-on-year revenue was the worst on a percentage basis since they
began keeping track in 2005.
VIP was themain culprit, but that was expected. It’s been down against 2013
everymonth sinceMay.
Investors, however, weren’t looking for themassmarket to comeup short. But it did. For
thefirst time thisyear.Why?Nooneknows really.Howsharepriceswill reactwasanunknown
as well as this went to press. Certainly the comps are getting tougher, and the consensus
among analysts is that things will continue to look bad heading into 2015. Last spring was
one of themarket’s best ever. February, fueled by ChineseNewYear, produced a record $4.8
billion, a40% increaseover the samemonth in 2012.
Lastmonth, the 35 casinos took inMOP28billion (US$3.5 billion), down 23.7% against a
$4.6billionmonth inOctober 2013 thatwasup31.7%over 2012. Inabsolute terms themonth
was“broadly in line”with the revenue range from June toAugust, asbrokerageUnionGaming
ResearchMacaudulynoted. And revenuewasalmost 10%higher sequentially comparedwith
September, which represented a low in absolutedollar terms atMOP25.2billion.
Likewise, rolling chip volume,whichmeasures theamount of junket-backedVIPplay,was
higher thanSeptember’sby 16%.Revenue year-on-year fell bymore than30%, but so it’sbeen
for the last sixmonths, and it wasn’t helped either by last October’s outsized performance,
which remains the industry’s second-bestmonthly haul on record.
What we know is that the Communist Party’s nationwide crackdown on corruption and
capital flight is wreaking havoc with the high end—historically the lion’s share of Macau’s
world-leading revenues—and this is being aggravated by declining property prices in
mainland China, where economic growth is slowing generally andmaking credit harder for
the junkets to come by.
What’s surprising is how cash play also appears to be feeling the effects. Mass-market
growthhas been slowing sincemid-summer comparedwith the spring’s triple-digit beats. It
fell into the red inOctober by 8%, andwho remembers the last time that’s happened?
Yes, the tough 2013 comp was a factor. The crackdown launched earlier this year on
abuses in China’s third-country visa system is taking a toll as well, cutting the frequency of
visits. It’s alsobecomeharder to exploit thepopular state-runUnionPay debit card system to
evade the government’s tight daily limits on yuan exports.
But there are a few wild cards to consider. Some casinos have responded to the floor-
wide smoking ban that took effect last month bymoving their “premiummass” players, as
the sector’s high rollers are known, into makeshift “VIP” rooms. (VIP is exempt from the
ban.)HongKong’sOccupyCentral protestshave tobe taken into account too. It’sbeenwell-
documented that visits to the city from themainlandwere firewalled to limit public exposure
to the pro-democracy demonstrations.Manymainlanders bundle their travel to include both
HongKong andMacau.
Itmay be interesting finally to speculatewhether the capacity constraints decreed by the
government’s annual cap on new table games isn’t nudging themarket toward that tipping
pointwherepricebegins todeflectdemand.After all, it’snot likepeoplehaven’tbeencoming.
Through September, total visitation for the year is up 7%. Visits under China’s Individual
Visit Scheme are upmore than 18%. October’s numbers weren’t out as of this writing, so
the full impact of Occupy Central isn’t known, but given that visitor spend is also up across
major categories such as shopping and hotel rooms, could it be that people simply are not
gambling, or they’re gambling less? Ormaybe it’s just the big spenders staying away?
And big spenders they must be, too, because minimum bets now exceed HK$2,000
on average, according to research by investment bank CLSA. That’s more than US$250 a
pop. CLSA says the number of tables acceptingminimums under HK$500 has dwindled to
practically zero, and fewer than 15% are accepting less than$1,000.
“Trees do not grow in the sky and going forward it should be very difficult to increase
minimumbet further,” the bank said.
Credit Suisse analysts Kenneth Fong and Isis Wong raise the possibility that the mass
market dropcould trigger a further sell-off in thesharesof thesixoperators,whichhave taken
abeating in the secondhalf, aswe’re all aware.
“As the mass revenue starts dipping into the negative growth territory,” they said, “we
may seemore earnings downgrades.”
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