Fitch forecasts further improvement supported by steady tourism recovery

Fitch Ratings anticipates 15% economic growth for Macau this year, with gaming tourism recovery underpinning its expectations of strong economic growth for Macau in 2024.

The institution reaffirmed Macau’s ‘AA’ rating with a Stable Outlook in March 2023, reflecting the region’s robust public and external finances and continued economic recovery including in the gaming sector.

Fitch Ratings expects Macau’s gaming industry to improve in 2024, bolstered by a steady recovery in inbound tourism. This was particularly evident during the recent Chinese New Year holiday period.

The institution expects the mass-market segment to play a role in supporting this positive trend. The upswing in visitation and gaming revenue is likely to support casino operators with Macau operations to reduce their debt, according to a statement issued by the institution.

However, Fitch noted that the “upside potential in their ratings is constrained by their elevated leverage metrics, as deleveraging will take time for some of the operators, despite the improvements.”
Tourist numbers from mainland China to Macau surged during the 10-day Chinese New Year holiday, which was a day longer than normal.

“This influx reinforces our expectation of a recovery in Macau’s gaming sector for the rest of the year, despite the economic headwinds facing China. This resilience is in part due to a shift in Chinese consumer preferences towards service-oriented sectors, like domestic tourism and entertainment,” according to the statement.

Government data shows that inbound visitor numbers for the first seven days of the holiday period increased by 2.6% compared to the same period in 2019.

During the 10-day Spring Festival, data shows that a total of 5.83 million border movements were recorded.

From these, over three million were movements related to visitors’ entry and exit, with total visitor entries reaching 1.52 million.

This influx of tourists is likely to boost casinos’ gross gaming revenue (GGR), with the mass-market segment already registering revenues in the fourth quarter of 2023 that exceeded 2019 levels by 4%.

“The VIP segment, however, is on a slower path to recovery and unlikely to return to pre-pandemic revenue levels in the near future. This slower rebound in the VIP segment can be attributed to recent years’ regulatory tightening in China’s treatment of gaming tourism and the broader economic challenges facing China,” Fitch stated.

Meanwhile, the institution warned that recovery in Macau’s gaming revenues could be slowed by possible policies to tighten capital outflow from the mainland.

GGR to reach a four-year high of MOP650 million daily

Macau’s gross gaming revenue (GGR) is expected to increase by 80% year-on-year in February, reaching MOP19 billion, according to brokerage firm JP Morgan.

This translates to a daily run-rate of MOP650 million, the highest seen in over four years.

The analysts note that the GGR for the first 18 days of February was MOP12.5 billion, indicating a 75% recovery compared to the same period in 2019. The data suggests a daily run-rate of MOP715 million over the past two weeks, surpassing JP Morgan’s earlier expectations. Citigroup also estimated that the daily GGR during the Chinese New Year would be around MOP900 million, and their prediction was largely in line with the actual figures.

According to industry sources, VIP volumes increased by approximately 10% to 14% month-on-month, while mass volumes rose by about 8% to 10% month-on-month.

During the Chinese New Year Golden Week, the daily GGR was projected to exceed MOP1 billion, outperforming the previous year’s October Golden Week. The recovery of Macau’s mass GGR has surpassed 120% of 2019 levels.

JP Morgan expects the strong performance in February to drive mid to high single-digit quarter-on-quarter growth in estimated GGR for the first quarter of 2024. This, combined with positive fourth-quarter earnings reports from 2023, suggests that consensus revisions are likely to be positive.

This would be the highest run-rate in over four years and is projected to drive mid to high-single-digit growth in first-quarter GGR compared to the previous quarter. Citigroup maintains a more conservative estimate of approximately MOP19.5 billion for February’s GGR, representing around 77% of the GGR in February 2019.