Gaming | Morgan Stanley warns 2019 dip not over yet

The 2019 dip in gross gaming revenues is not over yet, Morgan Stanley warned in a report earlier this week, as it slashed its growth expectations for the local sector by two percentage points.

Gross gaming revenue in the Macau SAR has declined for the past two consecutive quarters, putting to rest a 10-quarter uninterrupted climb that began in early 2016.

Arguing that casino earnings in the SAR “have not bottomed,” analysts at the firm cut their previous growth expectations from -1% year-on-year to -3%.

Gross gaming revenue for the first eight months of the year is down about 1.9% year-on-year at 198.2 billion patacas, after August recorded the sharpest decline of the year to date. Expectations for September are mixed, though the consensus among analysts appears to point to a single-digit rebound, owing in part to a low base of comparison last year. September 2018 was the worst performing month last year at just MOP21.95 billion.

Morgan Stanley analysts Praveen Choudhary and Thomas Allen are betting on 4% year-on-year growth in September, gaming news website GGRAsia reported, followed by a further contraction in the final months of the year.

“Many macroeconomic indicators are suggesting a VIP recovery between now and December, yet VIP revenue has deteriorated further in the past three months,” the analysts stated, as cited by GGRAsia. “An even bigger concern is mass revenue, which has remained robust (more than 10 percent [growth] year-on-year in the first eight months), but could turn slower in fourth-quarter 2019, to single digits.”

Despite the year-on-year contraction in the first eight months, Macau’s gaming sector has proven resistant to a perfect storm of economic headwinds this year, led by a slowing Chinese economy amid the ongoing China-U.S. trade war. With Macau’s economy reliant on mainland tourism, and its currency indirectly pegged to the U.S. dollar, the SAR is particularly vulnerable to shocks to the world’s two largest economies.

Macau gaming is also thought to have come out relatively unscathed by the ongoing protests and travel disruptions in nearby Hong Kong, as well as pressure from the junket business catering to VIPs, which has withdrawn from certain overseas activities following scrutiny from Beijing.

The outlook for 2020 is only marginally better. Morgan Stanley has cut its previous 8% year-on-year growth projection to just 3%. It said that mass revenue growth of about 10% this year would slow to 7% next year, while VIP revenue growth would improve from a 17% contraction this year to a 2% decline in 2020.