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Macau casino operators get a boost from improving visitor numbers

Gaming revenue was down 34 per cent last year

PUBLISHED : Tuesday, 16 February, 2016, 6:36pm
UPDATED : Tuesday, 16 February, 2016, 6:36pm

As Macau’s casino operators close the books on a disappointing 2015, new year optimism is mounting as visitor numbers increase and the year-on-year gaming revenue gap shrinks.

Mainland Chinese visitor arrivals during the Lunar New Year break were up 4.3 per cent over the corresponding week last year, the Macau Government Tourist Office said on Monday.

But the average daily revenue of HK$790 million was 20 per cent less than a year ago, according to Nomura gaming analyst Richard Huang, with high rollers staying away amid the mainland’s economic troubles and corruption crackdown.

“The growing number of tourists as well as high hotel occupancy rate don’t directly lead to the improvement of gambling revenue, as the visitation growth is mainly driven by tourists with weaker spending power,” Huang said.

Still, the result was slightly better than forecast and led Nomura to predict full-month revenues would drop 6 per cent to 10 per cent year on year to between HK$16.3 billion and HK$17 billion.

Macau’s gaming revenue has fallen for 20 straight months, and was down 34 per cent last year, with casino operators’ stock prices taking a hammering.

I think it is already pretty clear that Macau has hit a solid bottom
Richard Huang, Nomura

Sands China is trading at less than half its February 2014 peak, while Galaxy Entertainment and MGM China have dropped more than two-thirds of their 2014 peak share value. Wynn Macau and SJM Holdings trail still farther behind.

But sentiment has improved since January, when the year-on-year gross gaming revenue gap narrowed to 21 per cent.

Macau casino stocks have dropped 1.5 per cent this year versus a 14 per cent drop for the Hang Seng Index, and have rebounded an average of 23 per cent since January 21, Bloomberg reported on Tuesday.

“Macau’s gaming revenue is stabilising and during the year they’ll run into easier year-on-year comparatives,” said Ben Surtees, a London-based money manager for Jupiter Asset Management.

Nomura analysts agreed the market was stabilising but cautioned against a bullish view of 2016.

“I think it is already pretty clear that Macau has hit a solid bottom,” Huang said. “What’s unclear going forward is how strong the recovery will be. We don’t think it will be very strong considering the various macro concerns.”

Fourth-quarter results will trickle out from MGM and Sands this week. Analysts expect no real surprises, Sands already having revealed its hand in its parent company’s results announcement.

Nomura analysts say the key points of interest on gaming stocks are the performance of the mass and non-gaming businesses, which have become key earnings drivers, along with cost-cutting initiatives.

“Investor interest is likely to shift towards balance sheet health as we think this is likely to be the key driver of relative share price outperformance,” Huang said.

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