Gaming | Typhoon shutdown to cost casinos USD186m

Macau casino stocks retreated after Typhoon Mangkhut forced a 33-hour shutdown of the world’s biggest gambling hub, a halt that’s estimated to cost operators as much as USD186 million in revenue.

Nearly all casinos in the enclave reopened at 8 a.m. yesterday, after a government order shuttered their doors at 11 p.m. Saturday night as the storm approached. The Bloomberg Intelligence index for Macau casinos fell as much as 2.1 percent in early yesterday trading in Hong Kong, with Galaxy Entertainment Group Ltd. and SJM Holdings Ltd. leading losses.

The casino shutdown is expected to cost Macau from 1.1 billion patacas to 1.5 billion patacas in lost gaming revenue, estimated Union Gaming Securities Asia Ltd. analyst Grant Govertsen. Industry employees said it was the first time Macau shut down gambling since licenses for casinos were given out in 2002.

The storm disruption is expected to dampen casino revenue in Macau, with Govertsen and other analysts lowering the hub’s outlook. September’s revenue growth rate could be affected by as much as 7 percentage points, said Govertsen, who almost cut in half the firm’s previous forecast of a 15 percent increase. The storm’s impact is likely to cut third-quarter revenue growth by 2 percentage points, to 12 percent, he wrote in a note.

“This robs the month of one important weekend day,” which typically generate significantly higher gaming revenue than midweek days, Govertsen said in an interview. It will take a day or so for traffic to return to normal given how many flights and ferries were canceled, he added.

The shutdown is the latest blow to Macau casino operators after a rebound for the industry that began more than two years ago. Investor worries are growing over a pullback in spending by big gamblers as China faces an economic slowdown and questions tied to the trade war with the U.S.

Shares of Galaxy dropped as much as 4.6 percent Monday, with SJM tumbling as much as 3.9 and Wynn Macau falling as much as 3.2 percent. Casino shares fared worse than the benchmark Hang Seng Index, which declined as much as 1.8 percent.

“Investor sentiment could remain weak and volatile for now, given macro uncertainties and likely earnings revision by the street, exacerbated by this typhoon/suspension news,” JPMorgan analyst DS Kim wrote in a note Sunday. “September could be a month to forget.”

Kim also lowered September’s gaming revenue growth forecast to low-single digits from a previous 13 percent estimate. The casino shutdown will also slow down this quarter’s revenue growth to 10 percent from the firm’s current estimate of 14 percent, the note said.

Still Ben Lee, a Macau-based managing partner at Asian gaming consultancy IGamiX, said the decision to shut the casinos was the right choice to ensure employees’ safety and noted the industry is “still in positive growth territory.” Lee also expects to lower his gaming outlook for the hub.

Junket operators and other industry officials had expressed relief at the shutdown, praising the government’s decision.

“This is the first time in Macau history that all casinos halted operations, to ensure the safety of employees,” said Stephen Lau, president of Power Macao Gaming Association, an organization that represents casino workers. “We are seeing the government and casino operators no longer just put profit over the employees’ interest.”

Casinos in Macau have had 25 straight months of growth, boosted by high rollers and the opening of flashy new resorts on the Cotai peninsula. Operations were disrupted last summer by Typhoon Hato, which caused 10 deaths, according to Xinhua. While casinos continued to operate during that storm, the government estimated the economic loss to Macau amounted to 12.6 billion patacas ($1.6 billion).

Casino stocks tumbled last week after Deutsche Bank lowered its forecast for revenue growth in Macau. 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.

Morgan Stanley, however, wrote last week that casino shares may be poised for a 50 percent rebound. Based on the last cycle that ended in July 2012, shares are set to recover on the back of improving earnings, it wrote in a note, helping a two-day rebound in the benchmark casino gauge. MDT/Bloomberg