IAG June 2015 - page 7

“We seea case
growth in2016,
isabeton the
China consumer
growth story,”
In Focus
It fell a further 37.1% in thefirst fourmonthsof this year. Reasons for
the ongoingdecline include transit visa restrictions, China’s slowing
economic growth and declining housing prices, junket promoter
liquidity issues, protests in Hong Kong on top of growing anti-
mainland visitor sentiment in a destinationmany Chinese travelers
visit in tandemwithMacau, greater regulatory scrutiny and amass
gamingfloor smokingban instituted inOctober.
“What adifference a yearmakes,”Bloomberg IntelligenceSenior
Gaming Analyst Tim Craighead says. He notes earnings estimates
for the six Macau operators—Sands China, SJM Holdings, Galaxy
Entertainment Group, Melco Crown Entertainment, Wynn Macau
andMGMChinaHoldings—are down 37% and stocks have “round-
tripped” since2013.Massmarket growth, themaindriver of revenue
expansion for the previous two-plus years, has “hit a wall,” retail
sales are faltering and labor costs are rising.
“In sixmonths, hopefully we’ll be rocking along the bottom. Part of
that is on a little bit of stability we’re seeing now, specifically with
VIP,” Mr Craighead, who also serves as Bloomberg Intelligence’s
director of Asian research, says. “The central issue is: dowe see the
massmarket ready to respond tonew resorts?”
The full smoking ban proposed by the Macau government
represents a “wild card” that could impact both mass market and
VIP, by changingdurationof play for smokers, he adds.
“We see a case for resumed growth in 2016, coming off a low
base,”MrCraigheadsays,on thebackofChina’seconomystructurally
shifting toward consumer spending. “Macau is a bet on the China
consumer growth story.”
“Macau is a pure play on Chinese outbound tourism,” CLSA
Regional Head of Consumer Research Aaron Fischer says. He
expects the growth rateofmainland visitor arrivals toMacau to slow
from last year’s 14% to 9% over the next five years, but that will still
mean an increase to 38millionby 2020.
“I’m quite optimistic about Macau,” Mr Fischer says. “There’s
huge investment, $40billioncapex [capital expenditures], $20billion
in a short time. The Philippines is becomingmore credible but has
maybe $8 billion cap ex.” In the short run, though, “We forecast
Macau revenue down 26% this year,” he says. “We’re not seeing
infrastructure fast enough formass players to replaceVIPs.”
Mr Fischer sees new resorts promoting expansion next year.
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