Has Macau’s Casino Market Finally Bottomed Out?

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Tuesday, July 14th, 2015 | Written by Charles Washington

Macau casino revenues were continually impressing the market until June 2014 when the island’s gambling industry suffered its first contraction in more than five years. That was when revenues fell by 3.7%, but since then business has been suffering double digit falls and the latest results from the Macau Gaming Inspection and Coordination Bureau’s (DICJ) make further troubling reading, too, with June’s revenues down a huge 36.2% to $2.2 billion from the $3.4 billion generated a year earlier. Such a low figure has not been witnessed since November 2010, and with revenues currently lower by 37% for the first six months of 2015 compared to the same period last year, analysts are now wondering if after thirteen consecutive months of decline the market has finally bottomed out, or whether more bad news can be expected in the future.

Room For Optimism

Despite June’s troubling results, some gaming experts have been putting a positive spin on the state of the industry, pointing out that the contraction in revenues was slightly less than the 38.3% prediction made by market analysts. JPMorgan Chase & Co analyst DS Kim, for instance, described June’s results as “very bad, but at least not worse than feared”, whilst Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski, commented:

“Although a 36 percent year-over-year decline is far from healthy, we find it encouraging the theme of modest sequential comparison improvement remains on trend.”

There are further signs things may finally be moving in the right direction, too, as casino revenues noted an increase for the last nine days of June, indicating that the summer tourism season may finally be gaining momentum. If the trend continues into July then Macau’s gambling industry may soon start producing some more encouraging annual numbers.

Relaxed Transit Visa Policy

Providing even more grounds for optimism is the reversal of Macau’s transit visa policy on July 1st which once more allows mainland visitors to stay up to seven days in Macau on their way to a foreign destination, and two more days on their return journey within a six month period. Not only has this been hailed as an important step in boosting visitor numbers, especially in the VIP category, but it also represents a measure of support from Bejing even as it continues its anti-corruption drive that has been so damaging for the island’s casino industry.

Softening Of Smoking Ban

The Chinese economy has been slumping recently with $3 trillion wiped off China’s stock markets in recent weeks and currently 30% lower than its highs of June. Furthermore, economic growth is expected to slip to 6.8%, and with this slowdown affecting the Macau casino industry the local government has taken measures to shield its market by softening its decision to implement a full smoking ban next year, which was predicted to reduce gambling revenues by a further 10% to 15%. In fact, soon after the announcement was made casino operator shares surged on the Hong Kong stock exchange with gains noted by Wynn Macau (5.7%), Galaxy Entertainment Group Ltd (4.7%), and Sands China Ltd. (4.7%) in early trading. Commenting on the market reaction, Benjamin Collett from Sunrise Brokers LLP, explained:

“It’s a squeeze, a bear-market squeeze, so anything can trigger it. [It] indicates a softening of the government’s stance, and that’s positive enough to make you reduce your short position.”

New Casino Projects

Macau is also hoping to see a rebound in its casino revenues following a number of new casino projects planned for China’s only legal gambling resort. Last month, for instance, Galaxy Entertainment Group Ltd opened Macau’s first new casino in more than three years, and while its revenues have thus far been softer than expected Galaxy Vice Chairman Francis Lui has said that by July and August business should improve. As he explains:

“[Business] will be better in the next one to two months.. Be patient, we believe the scale, facilities and services of the second phase are the best.”

Another new casino expected to increase revenues is currently being built by Melco Crown Entertainment Ltd, namely Studio City, and is expected to open towards the end of the year. The integrated resort will also feature Asia’s highest Ferris wheel, and commenting on Macau’s prospects going forward Bloomberg analyst Tim Craighead said:

“We still hope that the combination of Galaxy Phase 2 and Studio City can be enough of a draw to catalyze a turn, along with other factors, later this year and into next.”