In this regular feature in IAG to celebrate 17 years covering the Asian gaming and leisure industry, we look back at our cover story from exactly 10 years ago, “Cranking cash”, to rediscover what was making the news in November 2012!
It’s a story we’re all familiar with by now. Macau’s casino stocks, once the envy of the gaming world, have been pressured to record lows in recent years by China’s anti-gambling measures, uncertainty around concession re-tendering and most importantly the impact of the COVID-19 pandemic.
But it wasn’t always this way. A decade ago, Inside Asian Gaming’s cover story (November 2012) examined the ongoing attractiveness of Macau gaming stocks on the back of 35% average annual growth over the previous decade and anticipation of steady, sustainable returns in the years ahead.
While the explosive growth that embodied Macau’s arrival as a global gaming hub had eased by 2012, IAG noted at the time that new investors into the sector were happy to enjoy these smaller and more predictable returns. Macau, analysts said, was “becoming eminently more marriageable in the eyes of this second group, who constitute a different breed in key respects from those who’ve bought the sector for the dizzying top line growth it’s delivered for much of the post-monopoly era.
“Notwithstanding a medium term in which revenue growth is likely to be more muted than in the past, it’s Macau’s overarching cash flow story that woos these value investors. They like the earnings colossus the industry has fashioned over the last decade both for its ability to support robust dividend returns while still funding the capital investment that will drive earnings growth and share price appreciation into the future.”
Sean Monaghan, senior Consumer and Gaming Analyst for HSBC out of Singapore, noted at the time that the “breadth of investors from around the world is massively changing,” referring to Macau as becoming “de-risked” and therefore increasingly “investable” for large yield buyers for whom positions in the gaming sector would not have been an option in the past.
“Where before you had only a few companies that were listed, and they had high debt and new assets under construction which may not have been producing revenue, or if they were under construction they weren’t producing anything, now all of them are producing tons of cash,” he said. “They have paid off their original investments. Now they’re going into a whole new wave, and the whole gearing structure is radically different from what it was before. The industry from a market cap perspective is so much bigger than what it was, but far more relevant. Before you had difficulty predicting earnings, and now it’s easier to predict them getting much bigger.”
In what also appears to have been a largely accurate glimpse into the future, IAG also prophesied at the time that Macau was evolving, gradually, from a VIP-focused market to one based on mass gaming.
The 12 months to that point, we wrote, had seen mass gaming revenue growing at a rate of around 30% while VIP growth had slowed from 24% in 1Q12 to 7% in Q2 and just 1% in Q3.
Yet perhaps this in itself bodes well for a post-pandemic Macau following the recent collapse of the VIP industry.
“The fact [is] that even though China has slowed down, and Macau has slowed down, the earnings have been quite resilient,” Monaghan said back in 2012. “And so global investors that used to play China consumer through other forms of consumer stocks are now looking at Macau and saying, ‘Hey, this is not as risky as we once thought’.”
