Gaming | Macau faces ‘gloomy prospects’ says retail investor firm

Retail investor firm Zacks Investment Research has warned that Macau’s gaming sector will remain volatile in the near term, citing a growth slowdown in mainland China amid the ongoing effects of the Beijing-Washington trade war.

Gross gaming revenue in Macau for the month of October slowed to just 2.6 percent compared to a year earlier, falling significantly under the year-to-date growth of 14.3 percent.

October’s take was roughly in line with that of August and the preceding months, suggesting that monthly revenues are plateauing. Monthly gross gaming revenue currently stands at about 70 percent of the industry high seen in February 2014.

Generally speaking, Zacks says Macau’s gaming sector faces “gloomy near-term prospects.”

According to Zacks, flagging property prices in China have impacted the high-end VIP segment of Macau’s gaming industry. The Gaming Inspection and Coordination Bureau’s policy to step up its monitoring and regulation of the junket industry may also hamper revenue from high-roller punters.

The silver lining, according to the research firm, is that the mass-market segment remains “impressive” in its performance.

“Though gaming revenues from Macau increased for the 27th consecutive month in October, the growth rate has softened since the second quarter,” wrote the firm.

“[The] slowdown in Macau gaming revenues remains a concern for the industry in the short run. Speculations over another crackdown on capital outflows by China have kept investors on the edge.” Zacks also thinks that there is “limited upside potential” for gaming stocks.

However, mobile and online gaming might drive long-term growth, given the “continued innovation and rampant use of smartphones.”

Deregulation of this multi-billion-dollar space is likely to occur earlier in the U.S. than in Macau, benefiting gaming operators with greater exposure to Las Vegas.

Meanwhile, gaming analysts are divided in their outlook for November 2018, with estimates ranging from 1.6 to 8 percent year-on-year growth.

Deutsche Bank Securities was among the most pessimistic, citing concerns over the VIP slowdown and the disappointing October Golden Week results.

Meanwhile, Union Gaming Securities Asia attributed October’s poor performance to Xi Jinping’s presence at the opening of the Hong Kong-Zhuhai-Macau Bridge in Zhuhai, adding that “any time a high-ranking official visits the region, it has an impact on Macau.”

Union Gaming has forecast that growth in monthly revenues will rise as much as 8 percent year-on-year, while Sanford C. Bernstein predicts growth of between 2 and 4 percent.