October revenues of ‘concern’

2014/10/14

From：Macau Business Daily

Last month, Macau casinos raked in 11.7 percent less revenue than a year ago. And while the number of mainland Chinese visiting the territory during Golden Week increased by 17 percent, gaming revenues dropped a precipitous 30 percent in the 7-day holiday.

Post-Golden Week table play is “very quiet”, say analysts at Wells Fargo Securities, LLC. This follows a 30 percent decline in gaming revenues during the 7-day holiday that ran from October 1 to 7, during which period the number of visitors from mainland China increased 17 percent compared to National Day holiday last year.
Senior analyst Cameron McKnight and Rich Cummings, associate analyst at Wells Fargo, said in their latest note to clients that ‘we believe that some of this weakness may be a result of cancelled China, Hong Kong [and] Macau tour groups,’ which saw visitation from mainland Chinese drop around 15 percent. ‘We believe it’s unlikely Macau-only tour groups will replace lost demand,’ the note reads. Analysts suggest there isn’t enough to do in Macau to justify visitors staying for up to three days. What is most common is for tourists to purchase a 3-day package tour, which includes two days in Hong Kong and a day here.
While analysts admit it is still too soon to tell what the outcome of the month will be in terms of casinos’ gross gaming revenue there are still challenges creating uncertainties. The two primary ones are the full smoking ban in casinos that came into effect just last week on October 6 and the fourth plenum that begins in Beijing on Monday next week, on October 20.
‘Our -21 percent year-on-year October estimate implies results for the rest of October will be down by 9 percent year-on-year,’ McKnight and Cummings wrote in their note to clients. ‘However, with the implementation of the smoking ban this past Monday and the fourth plenum beginning on October 20, considerable uncertainty exists with regards to the October outlook.’
Current analysts’ estimates of a 21 percent decline in gross gaming revenues could mark the bottom of Macau’s growth rate decline and ‘stocks will look inexpensive once Cotai projects open.’ These, according to analysts, could be positive strong points as sentiment suggests investors are looking to buy.
But while some remain bullish on Macau’s long-term secular growth story, others warn that October could be ‘much worse given typical intra-month trends’ and revenues could be 30 percent less than initially estimated. ‘Improvement in the second derivative is already in estimates, and potential risk for cannibalisation in 2016 could be high if growth does not pick up materially,’ the American brokerage firm’s note reads.
Last month, Macau’s gross gaming revenues decreased by 11.7 percent to MOP25.6 billion (US$3.2 billion) with mass table revenues increasing 15 percent year-on-year, while junket volume dropped 25 percent in the same period.
Analysts remain confident that China’s policies are ‘negatively affecting’ growth here, mainly in the implementation of visa restrictions, anti-graft campaign, cutback on credit and softening housing market.
One other factor to take into consideration as uncertainty lingers, and in addition to the effects of the full smoking ban and fourth plenum, is Chinese President Xi Jinping’s visit to Macau in December.

Copyright@Macau Business Daily