LAST WORD 58
Sharon Singleton
Managing Editor, AGB
Exploring economic disconnects Just seven years ago during a panel at G2E Asia, analysts and operators alike were predicting that Macau would be a $100 billion market by 2021.
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The day of reckoning for investors in Macau’s six heir rationale was the improved product offering from the new properties coming online on gaming operators came the day the local government Cotai and the fact that the Mainland was under published its long-awaited amendments to the gaming law. There was very little detail in the proposals, but they penetrated with just 2.8 percent of its population visiting Macau compared with 16 percent of the U.S. raised enough concern to wipe more than $18 billion off the value of the shares in the biggest-ever one-day fall population visiting Las Vegas. Infrastructure has been improving, creating ease of for the sector. Some analysts were swift to point out that the sell-off access from a wider number of Chinese cities, while a rising middle class was forecast to double their disposable was overdone and the long-term drivers remain intact. However, for an institutional investor sitting in one of income during the period. Roll on eight years and what has changed? Taking the world’s financial capitals, suggestions that the companies Covid out of the equation the same big picture economic may face restrictions on the distribution of capital, that drivers remain in place, but no one would suggest Macau’s there may be requirements for greater local shareholding ownership and direct supervision of operations was enough gross gambling revenue will hit $100 billion. In fact, forecasting where GGR in Macau might to hit the panic button. There was also a clear inference that to regain a gaming be five years from now is at present like pinning a tail concession companies would be on a donkey. required to invest more in non-gaming The uncertainty stems from the amenities and potentially in projects Chinese government and its vision in the Hengqin Cooperation Zone for its own and Macau’s economy. The to fulfill the Mainland government’s Political risk was always going to be vision to create a hub for international a factor for any investor in Macau uncertainty stems tourism and leisure in the Greater given the city’s majority reliance on from the Chinese Bay Area. a sector its giant neighbour sees as This may turn out to be a great a social evil. government and investment, but there is a niggling risk That risk had been seen as its vision for its that companies may plough funds worthwhile given the potential into a project to satisfy a political goal rewards. However, there had also own and Macau’s when that capital could produce a been a presumption that the gaming economy. higher return if invested elsewhere. industry was too important for Macau recorded gross gambling Macau’s economy to be at serious revenue of $37.7 billion in 2019 and risk from Beijing. according to Bernstein, the operators As China began to wield its axe on the Mainland, taking down its tech giants with a resulting only need to hit 30 percent of that level to remain profitable loss of some $1.5 trillion off the shares, turning its sights at the EBITDA level. This is a clear indicator of the strength on private education, clamping down on food delivery and and resilience of the gaming industry. However, at present there appears to be a disconnect ride sharing, Macau seemed to be curiously unaffected. The focus was on the recovery from Covid and the between the underlying economic potential and the potential for pent-up demand once visitors return. This ultimate reality. Without further clarity as to what exactly myopic vision continued even as some of the biggest the government means by the proposals put forward in its and brightest lights in the investment community held a discussion paper, it’s difficult for an institutional investor public sparring match over whether U.S. funds should be to consider funnelling new funds into the sector. Analysts from JP Morgan have pointed to the difficulties investing in China given the current climate. One long-term China watcher recently told AGB, of putting a potential floor on earnings multiples and “the checks and balances between the two seats of power, hence the stocks, saying that without further clarity it sees the government and the party, have been destroyed by Macau as being “nearly un-investible.” It expects it to be at least six months before the President Xi Jing Ping and now politics have full control dust settles. regardless of economic and social consequences.”
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Asia Gaming Briefings | October 2021
