Analysis | Good times may soon return to casinos

End of Losing Streak: Analysts expect Macau gaming revenue will rebound after a tough April

Fattened by years of non-stop growth, casino operators struggled through their slowest month in almost three years. But the good times, analysts say, may soon return.

Revenue at the world’s largest gaming hub slumped 8.3% in April – the third monthly decline this year – as China’s sluggish economy kept high-rollers away from gambling tables. April was possibly the low point for Macau’s casinos, according to research firm Sanford C. Bernstein, but the going may get better.

The Chinese economy, with its big headwind, could be on the mend. It delivered a stronger-than-expected first quarter, when gross domestic product increased 6.4% and industrial output jumped 8.5%, Bloomberg reports.

The mainland provides more than two thirds of Macau’s visitors to casinos owned by operators including Wynn Macau and MGM China. The growing mass market of casual gamblers is also propping up declines among VIP visitors.

“Improvements in the economic environment in China, if sustainable, [are] positive,” said Bernstein analyst Vitaly Umansky in a report. Gross gaming revenue (GGR) in Macau may rise between 2% to 4% in May, he said.

However, Union Gaming analysts, led by Grant Govertsen, expect the recovery of Macau’s GGR growth to come a tad later, in June. Casinos should notch up low single-digit percentage growth for the full year, Union Gaming said in a May 1 report.

NEW CHALLENGES

Even as China’s growth worries start easing, casinos may face challenges from other quarters. New Cotai Holdings LLC, an entity in Macau casino venture Studio City owned by U.S. partners, filed for Chapter 11 bankruptcy protection in New York on Wednesday, listing liabilities of US$500 million to $1 billion.

While Studio City International Holdings was not part of the bankruptcy filing, the bankruptcy plea by its key owner may risk the funding for its latest phase, Bloomberg analyst Margaret Huang wrote in a May 2 note.

Casinos can, however, look to the promising mass market segment, which has shown surprising strength. Boosted by holidays and a new bridge linking Zhuhai to Macau and Hong Kong, day-trippers and family tourists have been pouring in Macau. Also, the weakness in the high-end segment has not been as bad as feared.

A six-member index of Macau casino operators climbed as much as 2.5% in Hong Kong trading yesterday. SJM Holdings was the top gainer, with its shares gaining as much as 13.4% after it reported better-than-expected earnings, boosted by the mass market segment.

FASTEST FALL PACE

On the other end, gambling revenues fell at the fastest rate in almost three years in April against a backdrop of weak Chinese economic growth, the Financial Times has alerted.

Gross revenue from games of fortune fell 8.3% year-on-year in April to MOP23.5 billion (USD2.9b), according to the Gaming Inspection and Coordination Bureau, in the biggest fall since June 2016.

Analysts polled by Reuters had forecast a fall of between 3 and 12%. The April total was down from MOP25.8 billion in March. Bernstein said in a note in mid-April that it expects second-quarter gross gaming revenue to rise at a “modest” 2 to 4%.

“One area of potential high-end GGR stabilization and renewed strength may come from a recovering credit cycle in China which may support VIP recovery in the second half [of 2019],” Melco’s Lawrence Ho told the Financial Times in January. He said that slowing economic growth in China was weighing on Macau. China’s economy grew at a faster-than-expected pace at the start of 2019, growing 6.4% year-on-year, in line with the growth seen in the final quarter of 2018. MDT/Agencies