Casino revenue may continue to decline in October

Macau gaming stocks look cheap, but they’re going to remain so because the anti-corruption measures in China have affected consumption,” Kelvin Tay, Singapore-based chief investment officer for Southern Asia-Pacific at UBS Wealth Management, said in an interview. “People are less willing to spend in a very ostentatious way. The slowdown in the Chinese economy has also affected consumption, so the gaming stocks in Macau are a victim of these trends.”
Gross casino revenue in the world’s biggest gambling hub dropped 12 percent in September, the steepest slide since June 2009 and a fourth month of declines, official data released this week showed. VIP players account for more than 60 percent of the city’s gambling receipts.
Macau’s gaming revenue has also been declining amid signs growth in Asia’s biggest economy is stalling. Data released last month showed the weakest industrial-output expansion since the global financial crisis, while moderating investment and retail sales growth and a slumping property market underscore the risks of a deepening economic slowdown. The World Bank on Oct. 6 cut its 2014 China growth forecast to 7.4 percent, which would the slowest pace of expansion since 1990, compared with the government’s official target of 7.5 percent.
Not everybody is pessimistic. There had been concern pro-democracy protests in Hong Kong would have prompted mainland Chinese to cancel their usual joint trips to the two cities, said Grant Govertsen at Union Gaming Group.
“The increase in Chinese tourists to Macau is a positive signal that gaming revenue could recover this month,” Castor Pang, head of research at Core-Pacific Yamaichi in Hong Kong, said by phone on Oct. 6. “Investors will probably continue nibbling at Macau casino stocks since they’ve retreated a lot.”
Victor Yip, an analyst at UOB-Kay Hian Holdings Ltd. in Hong Kong, says the rebound might be short-lived as a smoking ban in casinos taking effect this month may negatively impact gaming revenue.
“It might be too early to buy Macau casino stocks,” Yip said by phone. “VIP gaming volumes remain soft. We still don’t know how much impact the smoking ban will have.”
Macau casino revenue may continue to decline in October and profit margins may soften as gaming companies face protests from workers demanding better wages, according to Pictet Asset Management Ltd. The Macau Gaming Industry Frontline Workers’ union has organized eight demonstrations so far this year compared with two in 2013.
“We’re still underweight on the Macau casinos,” said Pauline Dan, Hong Kong-based head of Greater China equities at Pictet. “The monthly gaming revenue from Macau has been declining due to China’s anti-corruption clamp down. There’s also going to be cost pressures for the casino operators in the next few quarters as workers are becoming frustrated and demanding a pay rise.” MDT/Bloomberg