IAG June 2015 - page 8

In Focus
“I hope new projects are interesting enough to drive mass-
market growth.”
“I’m struggling to see why mass market will revive,” Morgan
StanleyAsiaGamingResearchHeadPraveenChoudharysays. Except
forMelcoCrown’sStudioCity, nowexpected toopen late this year, he
doesn’t believe that new resortswill have enoughattractions todrive
market growth. Hotel occupancy andper capita tourist spending are
alsodown, asmore group travelers come toMacau, he adds.
Following Mr Choudhary’s G2E Asia panel appearance, Morgan
Stanley issued a report under his name along with analysts Alex
Poon and Thomas Allen warning that “investors are not cautious
enough” about Macau stocks. The report cites falling demand,
slowing earnings, potential valuation de-ratings and regulatory
issues, including a potential visitor cap, a full smoking ban and new
conditions on gaming licenses that expire in 2020 and 2022. Credit
Suisse analysts Kenneth Fong, who attended G2E Asia but was not
a panelist, and IsisWong, issued a similar warning during the same
week. “After all, the sector is not attractive at 23x P/E with risk for
further earnings cut,” they wrote, citing continuing weakening of
averagedaily gaming revenue.
Mainland authorities are “not out to getMacau,”Mr Choudhary
says, citing helpful initiatives such as expansion of border gate
facilities and hours, rail links bringing visitors toMacau’s doorstep
and joint development of Hengqin island, a couple hundredmeters
across the river from Cotai. Stricter transit visa enforcement is “a
loophole that was closed,” while the anti-corruption crackdown and
smokingbanhave been “a long time coming,” he says.
“China is a father, Macau is a son. China cares a lot about
Macau,”MrChoudharysays. “Theson isaddicted toChinesevisitors
andgambling, and that’snot good. Let’snot relyonChinese tourism
andgaming revenue [Chinasays]. I’mnot sure that all thecompanies
get it.Havinghotel roomsanda retailmall isnot necessarily enough
todrivepeople to comehere.”
“I don’t think we’re done in the VIP business [declines] either,”
Mr Choudhary, who serves as aMorgan Stanley managing director,
believes. “Liquidity comes down due to longer payback time [by
players to junket promoters]. If payback goes to 30 days from 15
days, VIP liquidity has halved.” Junket consolidationmeans the top
five junkets have gone from 50% to 80% of the market, with the
largest, Suncity Group, going from 20% to 30%, but he doesn’t see
Wall StreetView
thinks gloom and doom among local analysts is overdone. “We’ve
been a littlemore bullish than some of the curmudgeons out there,”
thesenior equity researchanalyst atBreanCapital,whoattendedG2E
Asia at VenetianMacau lastmonth, says.
MrMahersees thegamingstocksell-offasanoverreaction. “China
isn’tgoing toallowanothermarket inChina tohavegambling, andyou
lookat the infrastructure that’scomingon line. Idon’tseehowyoucan
not bebullishonMacauover thenext three-to-five years.”
In the shorter run, “I expect flat year-on-year GGR in September,
then mid-single digit growth in the fourth quarter, based on new
resorts. I have a hard time seeing where some groups get a 20-to-
30%decline for the year,”MrMaher says.
“We see new supply driving demand,” he says, after observing
“We seenew supplydrivingdemand,” saysNew
observing increased traffic inCotai resorts’
retail areasandhearingofpeoplewaitingat
border crossingsup tofivehoursonholidays
fora chance tovisit. “Mass isdefinitely coming.
Give themaplace to stayand they’ll stay.”
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