Gaming revenues to drop 15 percent in 4Q

2014/9/22

From：Macau Business Daily

Deutsche Bank has revised down even further its recent estimation of a 7 to12 percent decrease in revenues for the last three months of the year.

When you think it couldn’t get worse, it does. And fast. The remaining months of the year are poised to be painful for the gaming industry in Macau, especially for its stocks. Investors are revising their estimations for the next quarter almost every week and always in the same direction – down. From flat revenue growth to low single-digit drop to high-single digit decrease and now into a double-digit decline. All this in less than two months.

Deutsche Bank has decided to revise down its estimations for Macau’s gaming industry. They now predict that casino revenues in the fourth quarter will decrease here by 15 percent compared to a year ago, down from a recently estimate of a 7 to 12 percent decline.

The German bank says the market consensus on Macau – that expects a single digit drop in 4Q and low single digit growth for all 2014 – is too optimistic given current trends and some upcoming events whose impact is ‘harder to quantify’; namely, the smoking ban in October, a visit by China’s president Xi Jinping in December and some recent negative headlines from media that could affect the morale of gamblers and investors alike.

The 15 percent drop in gaming revenue for 4Q advanced by Deutsche Bank implies soft growth by the mass segment of 10 percent year-on-year and a decline of 29 percent in gains coming from high-rollers. The report also states that it is expecting VIP players to be responsible for 54 percent of all gaming revenues in Macau with the rest (46%) coming from mass tables. ‘While the evolving mix is certainly favourable for margins, we hesitate to get overly optimistic given the fixed cost base and promotional nature of mass when thinking about operator margin expansion’, wrote the gaming analysts from the Germany’s biggest bank.

The ride for casino operators in the last three months of the year is likely to be bumpy, with stocks listed in Hong Kong suffering the most. Deutsche Bank says gaming revenues in Macau will plummet – on a year-on-year basis – by 18 percent in October, 12 percent in November and 15 percent in December.

Deutsche Bank likes to use a two-year stack comparison when looking through Macau’s figures but even adopting this approach the slowdown is evident. Gaming revenues in the fourth quarter compared to the same period in 2012 will increase by 9 percent. That’s an underperformance compared to the previous quarter. In the first quarter, revenues went up 35 percent (compared to 2012), in the second quarter 21 percent and in the third they are likely to go up 11 percent.

Deutsche Banks now expects that gaming revenues in Macau for all 2014 will stay flat (a marginal decline of 0.4 percent) compared to last year. For 2015, revenues are expected to recover with a growth of 2.6 percent pushed by the start of new openings in Cotai that – hopefully – will bring more gamblers as well as capacity to Macau.

Copyright@Macau Business Daily