Gaming revenue in Macau fell for the third straight month in August, down 6.1% from a year earlier to 28.9 billion Macau patacas (MOP; $3.6 billion), Macau’s Gaming Inspection and Coordination Bureau reported Monday. Through August, gaming revenue for the year is up 8.1%, a paltry rise by Macau standards.
Shares in Macau gaming licensees dropped sharply in Monday trading in Hong Kong. Sands China, which recaptured Macau’s gaming market share lead in August according to the Macau Business Daily newspaper, saw its stock fall 3.2% in Hong Kong, and Galaxy Entertainment Group lost 2.9%. Both are part of Hong Kong’s benchmark Hang Seng Index, and on Monday they were its two worst performers. Shares in MGM China Holdings fell 3.5%, Melco Crown Entertainment lost 3%, Wynn Macau declined 2.4% and SJM Holdings, which surrendered the market share lead to Sands China, dropped 2.2%. Shares recovered mildly in Hong Kong Tuesday trading.
Before the 3.7% retreat in June, Macau’s monthly gaming revenue hadn’t fallen even once in year on year terms since June 2009, the end of an eight month losing streak attributed to visa restrictions on visitors from mainland China and the global financial crisis emanating from Wall Street. This time, reasons for the decline are more complex.
Analysts generally believe that August gaming revenue patterns mirrored July, when revenue fell 3.6% to MOP28.4 billion. There’s consensus that VIP revenue again fell in the mid-teens, while mass market revenue rose in the mid- to upper-teens. July and now August are the first months in five year when year-on-year mass market growth fell below 20%.
Union Gaming Research Macau analysts Grant Govertsen and Felicity Chiang cite China President Xi Jinping’s corruption crackdown as the top reason for the VIP slowdown. Deutsche Bank analyst Karen Tang has come around to that view after hearing from junkets that regular players prefer to keep a “low profile” following recent corruption arrests in the mainland.
After visiting Macau, Morgan Stanley analysts Thomas Allen, Praveen Choudhary and Alex Poon wrote late last month that poor junket liquidity constitutes an underappreciated “headwind” against the VIP segment. Collection cycles are lengthening in China, leading junket agents to spend more time chasing debtors in the mainland, rather than serving customers in Macau. China’s weak property market is a major factor in junket liquidity. Morgan Stanley warns that if junket liquidity remains weak, VIP revenue could fall 14% in the third quarter and 23% in the fourth against tough year on year comparisons, for a full year decline of 8%, compared with its current base case of a 3% decline.
Credit Suisse analysts Kenneth Fong and Isis Wong report that transit visa restrictions imposed from July have had “more adverse impact than originally expected” on VIP revenue as well as the premium mass segment to a lesser extent, based on discussions with industry participants. Previously, Chinese passport holders could enter Macau and stay for seven days through the transit visa scheme by holding a visa for onward travel to another country. Since July the stay has been shortened to five days, and penalties have increased for failing to travel to a third country. Fong and Wong say junket agents have been hit, as well as players. While players can use alternative means to enter Macau, they are far more inconvenient. Based on the outcome of previous travel rule changes, the CS analysts believe players will adjust in the coming months and enforcement may become more lax.
On the mass market side, Credit Suisse says lower level grind play is holding up well, but premium mass play has declined significantly. Morgan Stanley notes that mass table daily win rates have closely tracked China’s per capita disposable income growth rates. Both have been declining since the start of 2012, but mass market revenue growth has been supported by the increased number of tables, most of them transferred from VIP rooms.
Union Gaming sees four key reasons for the mass market decline, distinct from the VIP slowdown. Factors stifling mass growth include a financial hangover from World Cup losses, which the analysts say could last into next year for some players; casual gamblers filling hotel rooms previously occupied by more hardcore players; customer fatigue due to two years without new casino resorts; and “pockets of economic weakness” in China.
Whatever the reasons for the downturn, analysts don’t expect significant recover before the start of next year. The Golden Week holiday around China’s National Day on October 1 could provide a brief respite that, Union Gaming warns, shouldn’t be mistaken for a turning point.
