Macau’s gaming revenues hit their fifth month of year-on-year declines in October, and percentage-wise it was the worst drop since the depths of the global financial crisis, and the worst on record, as the current market slump is starting now to run up against tougher comparisons.
The 35 casinos took in MOP28 billion (US$3.5 billion), which was down 23.7% against a $4.6 billion month in October 2013 that was up 31.7% YoY and remains the industry’s second-best haul on record.
Yet, in absolute terms October was “broadly in line” with the range from June to August, noted brokerage Union Gaming Research Macau, and was almost 10% higher sequentially compared with September, which represented a low in terms of absolute dollars at MOP25.2 billion.
Likewise, rolling chip volume, which measures the amount of junket-backed VIP play, was higher than September’s by 16%, although revenue year-on-year fell by more than 30%, a trend of precipitous YoY declines that started in May and wasn’t helped by last October’s outsized performance.
“Assuming that November and December look more like September, we currently expect declines of 16% and 24%, respectively, to round out the year,” UGRM wrote in a client note. “This would result in total 2014 [revenue] down 2% to MOP355 billion ($44.4 billion).”
Most analysts are looking for about the same. The Communist Party’s nationwide crackdown on corruption and capital flight is wreaking havoc with VIP—historically the lion’s share of Macau’s world-leading revenues—and this is being aggravated by declining property prices in mainland China, where economic growth is slowing generally and making credit harder for the junkets to come by.
More surprising, though, is how high-limit cash play also appears to be feeling the effects. The mass market as a whole has been experiencing slower growth. But it fell into the red in October for the first time this year, down 8%—again, in part because of the tough 2013 comp; but there are other factors as well: a crackdown on abuses in China’s third-country visa system is taking a toll, cutting the frequency of visits, and it’s become harder to exploit the popular state-run UnionPay debit card system to evade the government’s tight daily limits on yuan exports; and there is evidence as well that some casinos have responded to the floor-wide smoking ban that took effect last month by moving “premium mass” players, as the sector’s high rollers are known, into makeshift “VIP” rooms. (VIP is exempt from the ban.)
Finally, the impact of Hong Kong’s Occupy Central protests has to be taken into account. It’s been well-documented that Beijing has kept mainland residents out of the city to limit their exposure to the pro-democracy street demonstrations. Macau could be feeling the effects since many mainlanders tend to bundle their travel to include both cities.
Credit Suisse analysts Kenneth Fong and Isis Wong believe the drop in mass has taken investors by surprise and could trigger a further sell-off in the shares of the six casino operators, which have taken a beating in the second half.
“As the mass revenue starts dipping into the negative growth territory now, even though we have seen the worst YoY growth trend in overall GGR for October, we may see more earnings downgrades,” the pair wrote in a 6th November client note. “A slower mass revenue should also hurt margins for 4Q which is yet to be factored in by the Street, in our view.”
The consensus among analysts is that things will continue to look bad heading into 2015. Last spring was one of the market’s best ever. February, fueled by Chinese New Year, produced a record $4.8 billion, a 40% increase over the same month in 2012.
“We currently see no reason that trends should materially improve in 1Q15 relative to current levels , which implies no better than negative 15% y/y during the quarter,” said UGRM. “It is important to keep in mind that the February comp will be particularly difficult.”
