Inside Asian Gaming

inside asian gaming JUNE 2015 8 Feature 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 Stanley Asia Gaming Research Head Praveen Choudhary says. Except for Melco Crown’s Studio City, now expected to open late this year, he doesn’t believe that new resorts will have enough attractions to drive market growth. Hotel occupancy and per capita tourist spending are also down, as more group travelers come to Macau, he adds. BEAR VIEW MIRROR 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 Isis Wong, 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 average daily gaming revenue. Mainland authorities are “not out to get Macau,” Mr Choudhary says, citing helpful initiatives such as expansion of border gate facilities and hours, rail links bringing visitors to Macau’s doorstep and joint development of Hengqin island, a couple hundred meters across the river from Cotai. Stricter transit visa enforcement is “a loophole that was closed,” while the anti-corruption crackdown and smoking ban have been “a long time coming,” he says. “China is a father, Macau is a son. China cares a lot about Macau,” Mr Choudhary says. “The son is addicted to Chinese visitors and gambling, and that’s not good. Let’s not rely on Chinese tourism and gaming revenue [China says]. I’m not sure that all the companies get it. Having hotel rooms and a retail mall is not necessarily enough to drive people to come here.” “I don’t think we’re done in the VIP business [declines] either,” Mr Choudhary, who serves as a Morgan 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 consolidation means 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 Street View From Cotai VeteranNewYork-basedMacauwatcher Bryan Maher thinks gloom and doom among local analysts is overdone. “We’ve been a little more bullish than some of the curmudgeons out there,” the senior equity research analyst at Brean Capital, who attended G2E Asia at Venetian Macau last month, says. Mr Maher sees the gaming stock sell-off as an overreaction. “China isn’t going to allow another market in China to have gambling, and you look at the infrastructure that’s coming on line. I don’t see how you can not be bullish on Macau over the next 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,” Mr Maher says. “We see new supply driving demand,” he says, after observing “We see new supply driving demand,” says New York-based Macau watcher Bryan Maher after observing increased traffic in Cotai resorts’ retail areas and hearing of people waiting at border crossings up to five hours on holidays for a chance to visit. “Mass is definitely coming. Give them a place to stay and they’ll stay.”