Inside Asian Gaming

JUNE 2015 inside asian gaming 7 “We see a case for resumed growth in 2016, coming off a low base. Macau is a bet on the China consumer growth story,” says Bloomberg Intelligence Senior Gaming Analyst Tim Craighead. In Focus It fell a further 37.1% in the first four months of this year. Reasons for the ongoing decline 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 destination many Chinese travelers visit in tandem with Macau, greater regulatory scrutiny and a mass gaming floor smoking ban instituted in October. “What a difference a year makes,” Bloomberg Intelligence Senior 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 and MGM China Holdings—are down 37% and stocks have “round- tripped” since 2013. Mass market growth, the main driver of revenue expansion for the previous two-plus years, has “hit a wall,” retail sales are faltering and labor costs are rising. MASS GAME? “In six months, 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: do we see the mass market ready to respond to new resorts?” The full smoking ban proposed by the Macau government represents a “wild card” that could impact both mass market and VIP, by changing duration of play for smokers, he adds. “We see a case for resumed growth in 2016, coming off a low base,” Mr Craighead says, on the back of China’s economy structurally 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 rate of mainland visitor arrivals to Macau to slow from last year’s 14% to 9% over the next five years, but that will still mean an increase to 38 million by 2020. “I’m quite optimistic about Macau,” Mr Fischer says. “There’s huge investment, $40 billion cap ex [capital expenditures], $20 billion in a short time. The Philippines is becoming more 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 for mass players to replace VIPs.” Mr Fischer sees new resorts promoting expansion next year.