Inside Asian Gaming

June 2014 inside asian gaming 17 regarding troublesome headlines and the issues. Even optimists caution that current negative news stories could pose threats, if the headlines represent the tip of larger policy-change icebergs, though they consider such developments unlikely. To be sure, Macau does have issues that need to be resolved, but executives are confident the market will remain successful in the face of these challenges. Nevertheless, share values for Macau’s six Hong Kong-listed casino operators are off their 52-week highs by 20% or more, as of this writing. “The reality is that investor sentiment is bad right now, and the rumor mill is working overtime, which combined has spelled bad news for shares of Macau’s gaming companies,” says Grant Govertsen of investment brokerage Union Gaming Research Macau. “As a market, Macau is exceptional and unprecedented, and this makes it more difficult for the international investment community to understand and feel comfortable,” says fund manager Matthew Ossolinski, chairman of Ossolinski Holdings. “For the past several years, there has been a disconnect between the short-term price movements of the Macau casino stocks and what is actually happening on the ground in Macau.” Macau’s Gaming Inspection and Coordination Bureau reported gross gaming revenue for May of MOP32.35 billion (US$4.04 billion), a 9.3% increase over May 2013. It was the fifth-best revenue month in Macau’s history. GGR through the first five months of 2014 is up 15.8% over the same period last year. But the increase was also the second lowest this year, behind January’s 7%, and it failed to hit the median estimate of 14.5% from seven analysts surveyed by Bloomberg News , and the immediate effect was to send Galaxy Entertainment In Focus (0027) down 3.1%; SJM Holdings (0880) down 3.2%; Sands China (1928) down 1.4%; and Wynn Macau (1128) down 1.2%. As of this writing, the shares of all six operators are down an average of 11% in 2014, compared with a 1.5% decline in the HKSE’s benchmark Hang Seng index. In recent weeks, ahead of the May numbers, the declines in operators’ share prices have been accompanied by a series of negative news reports. Last month, it was reported that China’s state-owned UnionPay was cracking down on a proliferation in Macau of illegal handheld devices that allow mainland gamblers to swipe the popular payment card for cash and evade the government’s stringent limits on yuan flows out of the country. The devices were even reported to be in use on casino floors. The Macau government says the problem has been exaggerated, but it has announced, in somewhat sketchy terms, that the casinos have been ordered to see the devices are removed. Analysts and executives believe that authorities are simply targeting UnionPay abuses rather than aiming to restrict use of the mainland-issued bank card, which enables visitors to get cash and make purchases in Macau. “If they’re just focused on illegal terminals it’s a small thing,” Standard Chartered analyst Philip Tulk said at G2E Asia. “If it’s a shot across the bow for something bigger, then it could have an impact.” Transactions barred from the casino floor will simply migrate to pawn shops or other venues, observers have said. “We see limited impact on the premium-mass segment, as we expect gamblers to use alternative methods to get cash,” Morgan Stanley Asia Pacific analyst Praveen Choudhary wrote in a May report. However, like Mr Tulk, he cautions that broader action against UnionPay could have a major impact on gaming revenue. Mr Choudhary estimates To be sure, Macau does have issues that need to be resolved, but executives remain confident the market will remain successful in the face of these challenges. “Everyone is looking under a microscope at Macau to show that it isn’t as good as it is. Macau and China’s governments will have policy changes from time to time, but they won’t fundamentally change the market. It’s not in anyone’s interest to do that.” Grant Bowie chief executive officer, MGM China