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MACAU
Visitor gains not fuelling GGR
Infrastructure improvements are expected to boost Macau tourist arrivals to record levels in 2019, although there has not been a corresponding boost to gross gambling revenue, with the weak Chinese economy affecting sentiment among high-income players.
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Visitors are expected to hit 40 million this year, driven mostly by traffic over the bridge linking Macau, Hong Kong and Zhuhai, which opened in October last year. And these levels are expected to rise as Beijing rolls out its Greater Bay Area initiative, which will improve connectivity with some of the key Chinese feeder provinces into Macau.
Macau Government Tourism Office Director Maria Helena de Senna Fernandes points out 2019 numbers mark a 438 percent increase since the founding of the Macau Special Administrative Region in 1999.
However, analysts say the bulk of visitors across the bridge are grind mass players and therefore are not doing much to move the needle when it comes to gross gambling revenue for the territory’s six operators
In the first nine months of this year, visitor arrivals have risen 17 percent, with two thirds of the total coming from Mainland China. However, the hotel occupancy rate is up just 0.3 percent in the same period, with occupancy in the four and five-star categories down on the year. The number of lower spending daytrippers jumped 30 percent.
Analysts agree Macau that future growth in Macau will come from the higher-margin mass segment, yet the key will be bringing in the premium mass visitors who stay longer and play more, rather than encouraging floods of short-term visitors, which put pressure on the local infrastructure.
VIP and premium mass customers made up of only one percent of visitors in 2018, yet drove around 70 percent of total GGR, according to analysts from Bernstein.
“It is clear that premium customers remain critical for long-term Macau growth, as wealthier customers spend more and come more frequently – and the population of this demographic is increasing,” Bernstein Research says.
Of this market segment, Guangdong is expected to remain as the key feeder province, however, Shandong, Jiangsu, Zhejiang, Shanghai, Hunan, and Henan are expected to deliver significant growth and will be critically important for future growth of the premium customer base, said the brokerage.
According to the China Outbound Tourism Research Institute, the lower middle class in China makes up 30 percent of the population, or 406 million people, while the upper middle class accounts for 9.7 percent. The high income earners amount to 11.2 million people, it says.
So far this year, Macau’s gross gambling revenue has been on a downward trend as the U.S./China trade war takes its toll on the Mainland economy. GGR has been negative for five months out of nine in the year to September, with that latter month showing a surprise gain of 0.6 percent. Year-to-date GGR has fallen 1.7 percent to MOP224 billion.
The highest impact has been amongst the VIPs, with GGR down 22.5 percent in Q3. Revenue from the mass market gained almost 18 percent in the quarter.
Total mass market baccarat generated MOP30.57 billion ($3.78 billion), almost drawing level with VIP revenue, which came to MOP31 billion.
The International Monetary Fund in its latest assessment of the Macau economy has forecast that gross domestic product will shrink for 2019 and the next two years.
The economy will contract by 1.3 percent this year and 1.1 percent in 2020 before growing 0.3 percent in 2024, it says.
In the first half of this year, Macau’s economy dipped by 2.5 percent, according to government figures.
The remaining Macau indicators mentioned in the International Monetary Fund report remain broadly unchanged in 2019 and 2020 compared to 2018, such as the inflation rate, the current account balance and the unemployment rate.
On the upside tax revenue generated from gambling activities has helped to shore up the city’s coffers and was 0.33 percent higher through September at $10.6 billion.
Macau received a total of 148 exclusion requests in the third quarter, putting exclusions on track for a record high, according to figures from the regulator. In Q3, the Gaming Inspection and Coordination Bureau (DICJ) received 129 self-exclusion requests and 19 third-party exclusions. For the year to date, the DICJ has received 439 requests, compared with a total of 490 for the whole of 2018. The quarterly statistics put Macau on track for a record high in terms of exclusions since the system was put in place in 2012. Under the rules, the maximum exclusion period is for two years and the applicant can ask to be excluded for some, or all of the 41 properties in Macau. For a third-party exclusion, the request needs to come from a spouse, or family member such as a son or daughter.
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. The company says the construction of its $4.6 billion Lisboa Palace resort is nearing completion and government pre-opening inspections are scheduled to begin shortly. For Q3, net gaming revenue fell 3.2 percent to HK$8.05 billion, while profit attributable to owners of the company rose 4.5 percent to HK$738 million. Gross gaming revenue at the Casino Grand Lisboa fell 33 percent to HK$2.79 billion.
During Q3. the group operated an average of 286 VIP gaming tables down from 291, 1,503 mass market gaming tables, up from 1,408 and 2,563 slot machines.
MGM China
MGM China (2282:HK) is operating two casinos, with its MGM Cotai IR opening in February last year. 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.
The company is another of Macau’s operators expected to have improved its market share in the most recent quarter as its MGM Cotai continues to ramp up.
The company recently announced the sale of two major assets, including iconic property the Bellagio, to raise net proceeds of $4.3 billion. Analysts noted that the sale will help the company in its efforts to deleverage, but would also provide a war chest for an investment in Japan if it wins a license there. Unlike its competitors, MGM has stuck by its planned partner Osaka and is seen as being in pole position there.
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 company is expected to be one of the weaker operators in terms of performance this year due to its focus on the premium and VIP sector, which has seen declining revenues this year.
As a result, some analysts have been trimming their forecasts for the group.
“For Wynn Macau we reduce EBITDA by 6 percent for 2019E to reflect weaker high-end and reduce our 2020E-2023E EBITDA by ~2 percent,” Bernstein analysts wrote in a recent note.
Although they added that longer term, the outlook for Wynn is positive.
Wynn is also competing for a Japan license and was another of the operators to recently switch its allegiance from Osaka to Yokohama.
Sands China
Sands China (1928:HK) has five properties in Macau. The company has 12,000 hotel rooms and suites, making up for 48 percent of hotel rooms run by casino operators in Macau.
The company’s strong room count puts it in the large room count position to gain market share in the high-margin mass market segment, especially when its rebranded Londoner property comes on line, with attractions expected to be rolled out progressively from 2020 to 2021.
It will join sister-themed properties The Parisian and The Venetian, which was the first IR to open on Macau’s Cotai Strip.
For Q3, Sands China saw net revenue fall 2.0 percent, compared to the third quarter of 2018, to US$2.11 billion, while net income remained flat at $454 million.
In Macau, adjusted property EBITDA was $755 million, consistent with the prior year, led by a 9 percent gain in the mass market segment, while VIP rolling volume was down across all of its properties.
Analysts say the results were in line with expectations. Bernstein said Sands China maintained market share at 23.2 percent, with its mass market share at 28.7 percent, up from Q2, but down from 30.1 percent last year.
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.
The company opened its new Morpheus property, designed by late architect Dame Zaha Hadid in June last year and is continuing to see the benefits from the ramp up. Analysts expect the company to be one of the main market share gainers in Macau in Q3.
Melco has been pushing its international expansion plans and Spectrum Gaming Group named the operator as a leader in the “internationalisation” of gaming brands in its forecasts for the year ahead.
The company is aggressively pitching for a license in Japan and recently switched from Osaka to focus its attention on the Kanto region. It is also developing a property on Cyprus in Europe.
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.
Along with Sands China, the company has the largest share of the Macau gaming market, though analysts expect that to have slipped in recent months due to the softening of the VIP market.
Suncity Group reopened its refurbished VIP club at Galaxy Macau in September, with 20 tables. The work is part of Galaxy Entertainment Group’s HK$1.5 billion revamp of Galaxy Macau, Broadway Macau, and StarWorld Hotel.
Like its peers, Galaxy is contending for a license in Japan. It has teamed with Monaco’s Societe des Bains de Mer, with whom it has also been hosting a series of cultural events in Macau.
Plan for Macau “Nasdaq” submitted to Beijing
A senior Chinese official says a proposal for a yuan-denominated “Nasdaq” in Macau has been submitted to Beijing, local media reports.
He Xiaojun, director of Guangdong’s Local Financial Supervision and Administration Bureau, said he hopes the central government would give the plan its blessing as a 20th anniversary gift, the South China Morning Post reported.
Such a hub would help develop the financial sector in Macau as part of a drive to diversify from gaming. It would also help to raise capital for hightech companies operating in Guangdong, it said.
He said the province has 45,000 hi-tech firms but only 600 Guangdong companies – not all of which are hi-tech – are listed, underscoring that the existing exchanges in Shanghai and Shenzhen could not meet the sector’s needs.
Exclusions set for record in 2019
Macau received a total of 148 exclusion requests in the third quarter, putting exclusions on track for a record high, according to figures from the regulator.
In Q3, the Gaming Inspection and Coordination Bureau (DICJ) received 129 self-exclusion requests and 19 third-party exclusions.
For the year to date, the DICJ has received 439 requests, compared with a total of 490 for the whole of 2018.
The quarterly statistics put Macau on track for a record high in terms of exclusions since the system was put in place in 2012. Under the rules, the maximum exclusion period is for two years and the applicant can ask to be excluded for some, or all of the 41 properties in Macau.
For a third-party exclusion, the request needs to come from a spouse, or family member such as a son or daughter.
