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Macau’s September Down by Double Digits

Newsdesk by Newsdesk
Thu 2 Oct 2014 at 05:37
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Indications are that September will be the worst revenue month for Macau’s casinos since the global financial crisis.

Ahead of an official tally due for release tomorrow, the government’s Secretary for Economy and Finance Francis Tam said the casinos’ take dropped 12-13% year on year, according to television station Teledifusao de Macau. It will be the fourth consecutive month of declines as a combination of negative factors—mainly China’s slowing economy, President Xi Jinping’s crackdown on corruption and a tightening of visa rules affecting mainland travel—continue to take a toll on volumes at the city’s vaunted baccarat tables, particularly among the biggest spenders.

The last time monthly gaming revenue declined by double digits was in the depths of the financial crisis in 2009, when it fell by 18% in June of that year.

In one of the clearest indications yet that gamblers are spending less, the self-governing territory—the largest casino revenue market in the world and the only place in China where casinos are legal—set a record for tourist arrivals in August, a month when gaming revenue fell 6.1% compared with August 2013, the biggest slide up to that point in five years. Revenue was down 3.6% year on year in July, 3.7% in June.

The VIP sector, which is fueled by credit play supplied by the casinos’ junket partners, is the most vulnerable to volatility on the mainland, be it economic and/or political, and it’s been suffering the greatest percentage declines and taking down the overall market with it, an outgrowth of the fact that it accounts for upwards of 65% of total revenues.

Analysts and observers have identified a number of causes, all of them interrelated in varying degrees. A crackdown on abuses in the visa system is curtailing allowable trips to Macau. Beijing’s campaign against corruption in government, the Communist Party and the state-owned enterprises has put a chill on lavish spending. Economic growth is slowing, which is impacting mainland property prices, a leading source of private wealth. Credit markets are tightening in response, and this is exposing fissures in the financial system. Against this backdrop, overseas capital flight has emerged as a major concern for the central government, and this has turned an unwelcome spotlight on the junkets, which also are wrestling with liquidity issues, the smaller, less well-capitalized promoters and their agents in particular, with credit harder to come by and gamblers borrowing less and taking longer to repay.

Worse, the effects now appear to be filtering down to the higher-margin mass market, where growth has cooled significantly from the triple-digit rates seen prior to July. For most analysts this is cause for even greater concern, and it is drawing a line under a number of pre-existing problems: namely, a labor market that is maxed out under current conditions and driving up operating costs; a government cap on the annual supply of new table games; and a main-floor smoking ban that comes into force on 6th October.

The investment houses largely have written off 2014 and are looking to next year and the opening of the first of six super-resorts under construction at the Cotai reclamation district to re-energize the market and juice visitation and gambling demand with new must-see attractions.

But expectations for Cotai in the shorter term are more muted now. Deutsche Bank, for one, has cut its 2015 revenue growth estimate to 1% from 10% market-wide, versus current consensus, which is looking for 8-12% on the plus side.

UBS, in its latest report, forecasts VIP revenue will decline 10% year on year from 2015 through 2017 against 10% annual increases in the mass market over the same period and overall declines of 1% to 2%.

 

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Thu 6 Nov 2014 at 07:16

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