Inside Asian Gaming

INSIDE ASIAN GAMING | 40 Filtering Out the Noise Macau gaming stocks have performed strongly over the past few months, and international investor interest in the sector continues to grow. While the stocks now benefit from much greater liquidity, their prices are still regularly moved by headline news which often has little correlation to their fundamentals. J.P. Morgan Leisure and Gaming analyst Kenneth Fong discusses the key factors to consider in forecasting where the sector is headed and the challenges in valuing the stocks INSIGHTS A lthough Macau’s official gaming figures are only released on amonthly basis, unofficial leaks of weekly revenue and market share data are widely disseminated and commented upon. The trouble with this is that while casino games favor the house in the long run, there can be a great deal of volatility in the short run, and so the ability of Macau gaming data to reliably indicate trends diminishes greatly as the measurement period narrows. Given the increasing interest in Macau gaming stocks, demand for analyst commentary on the data is also on the rise. This can sometimes lead to misinformed knee-jerk pronouncements from afar. On more than one occasion we’ve heard prominent gaming analysts express concern that Macau casino revenue during Chinese New Year wasn’t performing as expected. While Chinese New Year often sees floods of high-rolling Chinese players descend on US casinos, Macau VIPs—who generate close to 70% of the market’s total revenue—tend to avoid the crowds of mass-market visitors who come to the city during the period. More recently, the alarm was raised when the tentative recovery in the growth of Macau’s VIP revenue since the beginning of 2013 appeared to falter in the third week of April. Reaching for an explanation, one US-based analyst concluded the slowdown was likely related to players putting off their Macau trips until the weeklong mainland Chinese holiday to mark Labor Day on 1st May. Hong Kong-based Kenneth Fong, meanwhile, talked to Macau’s junket operators and revealed in a note that the real cause of the dip appeared to be volatility in luck, with VIP win rate for the week “below normal at around 2.7%-2.75%”. The market- wide VIP win rate for the first quarter of 2013 had stood at 3.28% Mr Fong is a member of J.P. Morgan’s Asia Conglomerate, Gaming & Lodging Team with a special focus on Macau Gaming and Lodging names, and his insights benefit from proximity to and regular contact with While casino games favor the house in the long run, there can be a great deal of volatility in the short run, and so the ability of Macau gaming data to reliably indicate trends diminishes greatly as the measurement period narrows.