MACAU

Operators eye innovation as retail pops

Alongside a rebound in gross gaming revenue, Macau is enjoying a boom in retail sales, with operators seeking to drive further growth through innovative concepts, such as pop-up shops and retail cafes.

In the second quarter of this year, retail sales gained 23.6 percent, adding to a revised 25.9 percent gain in the first three months, with nearly all retail categories gaining, according to government figures.

A return of the high rollers has helped to drive luxury spending, although the visitor profile to Macau has also changed, with higher spending overnight visitors accounting for more than 50 percent of the visitor base.

Visitors to Macau spent MOP16.5 billion ($2 billion) on items other than gaming in Q2, up 20 percent year-on-year, according to the latest visitor expenditure survey released by the city’s Statistics and Census Service. Overnight visitors spent more than four times as much than same-day ones. Their per-capita spending was MOP3,012, while the per-capita spend of same-day visitors stood at MOP819.

Shopping remained the largest-single category for Macau visitor non-gaming spend in the second quarter, accounting for 46.3 percent of the total.

The figures suggest the government’s efforts to push Macau to diversify its revenue sources away from gaming may be gaining traction, creating opportunities for operators to introduce new retail names across different price points and new experiences.

Galaxy Macau held a pop-up Prada event in December, featuring a mock railway carriage, in a metal shell reminiscent of the American Streamliners of the ‘30s and ‘50s, with a floral patterned red silk brocade interior.

Christmas versions of life-sized Prada Robots acted as porters pushing luggage trolleys, and the ticket kiosk hosted a concierge to organise visits to the pop-up store and deliver purchases.

More recently, the resort hosted a popup from SmileyWorld, which sells a series of products featuring the smiley emoji.

Melco Resorts & Entertainment has also been seeking to push the envelope when it comes to its retail spaces.

“We believe retail can be an attraction, but also that it is a key component of our offerings to guests,” Frederic Jean-Marie Winckler, executive vice president, chief marketing and brand officer, said in an email. “And that as they travel and develop, they will demand more from stores and services. Retail is a strong source of revenue, and has the potential to continue increasing significantly.”

“We believe retail needs to offer clients both a selection of the brands they know and new and exciting ones, while giving them an experience that is totally unique. Today, nothing looks more like a retail mall than another retail mall. While the big brands do a brilliant job at creating products and environments, there is a huge gap to a more adventurous offer in Macau. That is especially true of smaller brands and products from around the world. We have brought in a team of curators who scout the globe for the coolest brands to offer our clientele. We showcase these in a space that constantly changes in weekly cycles. Finally, we are dialing up personalization services for our guests.”

Melco reported higher non-gaming revenue in Q2 at City of Dreams Macau and Altira Macau, though saw a dip at its Studio City property. It didn’t provide figures for retail alone.

Sands China recently added almost 100,000 extra square feet of retail space at its Shoppes at Cotai Central, together with more than 25 new stores, including Macau’s first Apple Store. Many of the shops are high-street names reflecting a shift towards the mass market

“We believe it is vital to continue to develop and evolve the shopping experience, to introduce new brands to the market,” said David Sylvester, executive VIP of global retail. “We do this by constantly evaluating the retail mix at Sands Shoppes Macao and adjusting whenever needed, and by creating interesting and valuable campaigns to improve and add value to the customer experience.”

Last year, the resort hosted the first Sands Macao Fashion Week, which is set to return on October 18-24, 2018.

Mall revenues for Sands China for the six months ended June 30, 2018 were $233 million, slightly lower than the $235 million for the six months ended June 30, 2017.

Steven Kwok, associate partner at OC&C Strategy Consultants agreed that the gradual increase in the non-gaming side of Macau was helping to draw in new brands. Though he was sceptical that Macau could become a shoppers paradise.

“A large portion of revenue today still comes from the gaming segment of operators in Macau, typically making up about 88 percent of total revenues, much higher than Marina Bay Sands in Singapore at c.74 percent and Las Vegas at c.65 percent,” he said. “While this has decreased slightly over the past few years, it has been driven more so by the downturn in gaming rather than aggressive growth in non-gaming segments.”

Despite attempts by the operators to bring a more imaginative approach to their retail offerings, Kwok said the majority still focus on the high end of the market.

Sands China

Sands China (1928:HK) has five properties in Macau. The $3 billion The Parisian opened in September 2016 and is now a key driver of group results. It features a scale replica of the Eiffel Tower, nearly 13,000 hotel rooms, two million square feet of retail-mall offerings and two million square feet of MICE capacity. Sands China reported a 25 percent gain in adjusted property EBITDA to $750 million in 18Q2, helped by strong VIP growth. The results came in line with analyst expectations, with total net revenue increasing 18 percent to $2.1 billion and net income increasing 30 percent to $427 million in the quarter. According to a note from Union Gaming, net income was negatively impacted by a non-recurring write-off of disposal assets, largely from the Four Seasons.

Sands outperformed the market in VIP growth, up 30 percent year-on-year (compared to 18 percent growth), but had slightly lower mass growth of 18 percent year-on-year (compared to 20 percent). Rolling volumes were up 44 percent, while non-rolling drop grew 32 percent.

Morgan Stanley analysts noted that strong performance at Venetian, with EBITDA up 29 percent year-on-year, suggests the recent renovations have had a positive impact.

The company is seeking a license in Japan.

Galaxy Entertainment Group

Galaxy Entertainment Group (27.HK) has three main properties and runs three City Club casinos inside hotels. The company’s Galaxy Macau Phase 2 and Broadway at Galaxy Macau opened on May 27, 2015, almost doubling the capacity of the resort. For H1, the company posted strong results, though they were in line with expectations. It continues to be one of the best performing operators in Macau. Group net revenue reached HK$28.1 billion in the six months ended June 30, up 25 percent year-on-year, while net profit rose 56 percent year-on-year to HK$7.2 billion. Group adjusted EBITDA rose 34 percent year-on-year to HK$8.6 billion. The results were driven mainly by earnings from Galaxy Macau, its flagship casino.

Net revenue at the property rose 25 percent year-on-year. However, Galaxy said it experienced bad luck in its gaming operations which decreased Adjusted EBITDA by approximately HK$302 million in the half year, reaching HK$6.2 billion. Galaxy Macau VIP rolling chip volume was up 56 percent, mass gross gaming revenue was up 17 percent, while electronic gaming performance was up 10 percent year-on-year.

The company is seeking a license in Japan and also wants to build an IR on Boracay in the Philippines, though President Rodrigo Duterte has said he will not allow that to proceed.

MGM China

MGM China (2282:HK) is operating two casinos, with its MGM Cotai IR opening in February. The IR, with its jewellry box design, is already contributing to group results. The HK$27 billion IR features 1,400 hotel rooms and suites, meeting space, high end spa, retail offerings and food and beverage outlets as well as the first international Mansion at MGM for the ultimate luxury experience. MGM China Holdings Limited said its H1 revenue rose 30 percent, helped by the February opening of its new Cotai resort. For H1, total revenue came in at $9.1 billion, while adjusted EBITDA edged up to $2.3 billion from $2.2 billion a year earlier.

Main floor table games win for the group increased 31 percent year-on-year to $5.2 billion and slot win increased 65 percent to $1.1 billion. VIP table games win was up 11 percent to $4.5 billion. At its peninsula property, MGM Macau, main floor table games win slipped 8 percent on a lower hold of 17.9 percent from 20.8 percent a year ago. Slot win was up 16 percent and VIP table games win grew by 7 percent.

For the period, MGM Cotai recorded property EBITDA of $261 million on hotel occupancy of 88.6 percent.

Wynn Macau

Wynn Macau (1128:HK) operates two resorts, with its $4 billion Wynn Palace opening in 2016. The company’s original property is on the Macau Peninsula. The Wynn Palace has 1,700 hotel rooms and 90 percent of the resort will be non-gaming. The resort has two further plots of land available for development and the company is considering adding more non-gaming attractions. It may consider virtual reality or alternative reality concepts to drive visitation, although there are no current plans. For Q2, Wynn Palace continued to drive group results. The company posted a 56.2 percent rise in net profit to $160.3 million, while total operating revenues reached $1.2 billion, up 12.5 percent year-on-year compared to the prior year period.

The positive results was brought on by strong revenue growth across the board from Wynn Palace, with casino revenues up 62.4 percent to $525 million.

This was offset by a 18.1 percent dip in casino revenue from Wynn Macau, caused by a 13.1 percent drop in VIP revenue, but an increase in mass table and slot machine revenue.

Adjusted property EBITDA for Wynn Macau reached $382.8 million, while Wynn Palace was $391.2 million.

SJM Holdings

SJM Holdings (880:HK) has 22 casinos in Macau, though the former monopoly has been losing market share to new IRs on Cotai. SJM reported an almost 10 percent increase in net revenue for the first half of this year, though its share of the Macau market slipped in all categories from last year. In Q2, revenue came it at HK$17.2 billion ($2.19 billion), while gaming revenue climbed 9.6 percent to HK$16.8 billion. Net profit attributable to shareholders gained almost 57 percent to $1.49 billion, while adjusted EBITDA gained 29.9 percent to $1.95 billion.

The former monopoly holder said its share of overall gaming revenue slipped to 15.1 percent compared with 16.7 percent in the same period a year earlier.

Mass gross table revenue was up by 13.3 percent, while VIP revenue was up 1.4 percent from the same period last year. Slot revenue gained 12 percent.

SJM said it had a 12.2 percent share of VIP GGR, down from 14.2 percent a year earlier, while its share of the mass market was 20.2 percent, down from 21.4 percent. It accounted for approximately 7.9 percent of total slot machine revenue in Macau, compared to 8.5 percent in the corresponding period last year.

Bernstein Research in a note said that the results were in line with market consensus, though above its own estimates, helped in part by a strong performance in July. Although market share was down year on year, it did improve sequentially quarter on quarter.

Melco Resorts & Entertainment

Melco Resorts & Entertainment (6883. HK) has three casinos and the Mocha Clubs. The company operates the City of Dreams and Studio City in Macau and the City of Dreams Manila.

In Q2, Melco reported an 8 percent gain in adjusted property EBITDA driven by its City of Dreams Manila and Altira properties, though its results were hit by bad luck and a change in accounting practices for revenue. Overall net revenue was $1.23 billion, down 5 percent. Without the new reporting standard, revenue would have gained 3 percent.

Adjusted property EBITDA was US$355.5 million compared to US$329.5 million in the second quarter of 2017, while net income rose to $57.3 million from $36.5 million a year earlier.

The company said it expected the new Morpheus to help mark a new beginning for City of Dreams Macau and it was already beginning to see higher volumes in July. The company also said it plans to get to work on plans for the Phase 2 expansion of Studio City in the second half.

Analysts at Bernstein say the stock is undervalued compared with other Macau operators.

The company recently confirmed that it is preparing for an initial public offering for the joint venture company through which it owns Studio City, saying it will proceed once market conditions are conducive.

Locals gambling less, study finds

Gambling participation amongst Macau locals has decreased over the last 15 years, according to a government study.

Published jointly by the Gaming Inspection and Coordination Bureau, Social Affairs Bureau and the University of Macau, the responsible gambling work report shows a fall in the gambling participation rate amongst locals from 67.9 percent in 2003 to 51.5 percent in 2016.

Since the launch of a responsible gambling promotion campaign in 2009, participation in casino gambling fell from 20.7 percent in 2010 to 10.4 percent in 2016.

The survey also found a slight increase in people registered with the IAS central registration system of gambling disorder, reaching 157. This was compared to 141 and 147 in 2016 and 2015 respectively.

A total of 376 people were banned from entering casinos in 2017, either from self or third-party exclusion.

Typhoon Mangkhut to clip GGR

Super typhoon Mangkhut, which swept through the territory in September, was expected to clip gross gambling revenue for the month after casinos were ordered to close for the first time since the concessions were awarded in 2002.

Although the storm was more powerful that Typhoon Hato, which hit in August 2017, Macau authorities were better prepared and the operators said they suffered only minimal damage. The operators mobilized staff to help with the clean up efforts and deliver food and aid to the elderly and those in need.

Union Gaming said it expects somewhere between MOP1.1 billion and MOP1.5 billion in GGR would be lost as a result of the casino closures.