Gaming | Macau casinos sink on concern high rollers hit by China slowdown

Macau casinos shares tumbled yesterday on concerns that a softening Chinese economy is damping the allure of the baccarat tables for high rollers.

The Bloomberg Intelligence index for Macau casinos dropped as much as 5.2 percent, to the lowest level in a year, as Deutsche Bank became the latest firm to lower its forecast for revenue growth in the world’s biggest gaming hub. It cut its 2019 outlook by more than half, to 4 percent growth from 11 percent previously, citing concerns about the VIP segment and saying Macau is at the start of a downward earnings revision cycle.

Investors in Macau casinos are bracing for a pullback in spending by high rollers as China wrestles with an economic slowdown and faces uncertainties over the impact of a trade war with the U.S. The challenges threaten a rebound in the enclave that began more than two years ago.

The move by Deutsche Bank follows a note by Sanford C. Bernstein & Co. analysts Monday that showed Macau gaming revenue for the first nine days of September was below estimates.

Analyst Sanford C. Bernstein is forecasting that gross gaming revenue for September is likely to fall in the 8 percent to 11 percent year-on-year range. That will likely make September the second-slowest month of group this year, behind only February’s 5.7 percent rise.

“We continue to voice caution about the strength (and volatility) surrounding VIP,” said analysts at Sanford C. Bernstein. “Significantly shifting hold rates in VIP creates volatility and lack of ability to more accurately forecast the monthly trend.”

Last month gaming revenues reached MOP26.56 billion, up 17.1 percent year-on-year. In terms of monthly revenues, Macau has shown signs of plateauing between MOP25 billion and MOP27 billion per month.

Should monthly revenues hold stable until the year-end, Macau is on track to record approximately 15 percent year-on-year growth in revenues for 2018.

Some analysts are slightly more pessimistic, holding a consensus view of 14 percent, according to a Bloomberg Consensus Metrix survey of 10 analysts in late August.

And that may slow considerably next year. Bernstein in July forecasted 4 percent growth for gaming revenue next year, citing expectations for decelerating VIP gambling. Deutsche Bank has now joined the fold.

Macau gaming revenue was USD33 billion in 2017, a gain of 19 percent from a year earlier.

The Macau index of casino shares has fallen 37 percent since the end of May, and has dropped every day but one this month even as gaming revenue for August topped analysts’ forecasts.

MGM China Holdings Ltd. led declines yesterday, falling as much as 8.8 percent for the biggest intraday drop in almost two years. Galaxy Entertainment Group Ltd. and SJM Holdings Ltd. dropped more than 6 percent intraday as Deutsche Bank cut its ratings on both stocks to a sell. MDT/Bloomberg