It looks like the gross gaming revenue (GGR) rollercoaster in Macau hasn’t finished running its course, after all. The first few months of the year have seen the gambling city’s revenue move up and down, with May being relatively productive as it improved 1.8% over the same period last year. However, June is about to see the ride slow down if Sanford C. Bernstein analysts are correct.
The brokerage’s analysts predict that GGR will drop this month from what was previously forecast and has lowered its prediction to between 1-3% for year-on-year growth. They add that, if the US-China trade war continues, GGR recovery in Macau is going to become more difficult.
Over the first five months of the year, Macau reported GGR of around $15.57 billion. While that is an impressive return, it still represents a drop of 1.6% over what was seen during the same period in 2018. Most analysts have determined that the loss stems from a reduction in the number of VIP gamblers, which are, to some degree, staying away as a result of the trade war.
In Bernstein’s Monday note, the analysts asserted, “Weaker-than-expected macro data for May, along with the recent heightened tension in U.S.-China trade relations however, casts uncertainty over the GGR recovery. If a trade war sustains over an extended period, it will likely pose a headwind to China’s economy and gaming spend from China’s high-net-worth individuals in Macau.”
They added, “In the long run, improvements in transportation infrastructure, continued growth of the premium consuming class in China and the opening and ramping up of new casino resorts will support long-term growth in mass[-market play].”
Across the first 16 days of June, Macau’s GGR average was around $91.46 million, about 2% lower than the same 16 days in June 2018. The analysts explained, “VIP volume is estimated to be down mid-single digits of percent, with lower-than- normalised hold, and mass GGR is estimated to be down low single digits percent month on month. We continue to voice caution about the volatility surrounding VIP. Significantly shifting hold rates in VIP creates volatility and lack of ability to more accurately forecast the monthly trend.”
Even though Bernstein has lowered its forecast for the month, June and July could still show positive growth compared to last year. This is because June and July 2018 saw modest GGR improvements compared to the first five months of the year, and any uptick now would register as a year-on-year increase. Bernstein explains, “Recall GGR was quite robust in early 2018, until U.S.-China trade tensions heightened beginning last summer. Also, we may see surprise on the upside if VIP rebounds. One area of potential high-end GGR stabilisation and renewed strength may come from a recovering credit cycle in China, which may support VIP recovery in the second half.”
Despite the possibility of improvements, there is still at least one factor that could bring GGR way down. This year is predicted to be particularly heavy with major storms and typhoons and Macau could see its first before the end of the month.
