The whales may be swimming away from Macau casinos during the first half of 2019, but they will return during the latter half of the year. This is according to Instinet, the stockbroking division of Japan-based Nomura.
Instinet analysts Harry Curtis, Daniel Adam and Brian Dobson predict that Macau’s gross gaming revenue (GGR) is going to take a hit in the current half, but things will even out later in the year. The analysts write, “Consensus expectations are for (7.5 percent) VIP compression in the first half of 2019 and up low single digits in the second half, so there would be upside to estimates (and probably sentiment) if it stays flat or declines only low single digits while mass expands mid- to high-single digits.”
They further state, “Based on November and month-to-date December results, there should be upside to our kitchen sink 2019 (10 percent) VIP estimate.”
The analysts published their forecast this past Monday, providing guidance on the mass- and VIP-gaming segments of Macau’s casino industry. They added that year-on-year growth for GGR for the VIP segment has remained flat, or dipped into the red, during each of the past six months.
Three leading junket operators in the city – Suncity Group, Guangdong Group and Tak Chun Group – have been able to maintain capital liquidity; however, demand has been “more conservative due to uncertainty given the backdrop of weaker property and stock markets.” Casino games that are now being offered online from the Philippines are also working against Macau casinos’ GGR.
The analysts further point out that cuts in Wynn Resorts’ profits have hurt the local industry. They state, “Investor concerns intensified in November, when Wynn Resorts Ltd presented its initial pessimistic thoughts on 2019, implying that the premium segment could be down 10 percent to 15 percent … Since then, November GGR rose 8.5 percent (helped by a high hold) and December came in better than expected at plus 16.6 percent. VIP in the fourth quarter will probably be flat, while mass revenues may lift over 15 percent.”
There is a bit of good news to come out of the investor note, however. Instinet says that exposure to stocks of the casino companies in Macau offer a better combination of risk and reward among the gaming, cruise line and lodging companies. They explain, “The reason for such GGR growth in the face of China deceleration is that Macau is undersupplied like Las Vegas was during the recessions of 1991 and 2001. For 2019, we expect much better stock price performance and multiple expansion for Macau operators with ramping properties.”
