Galaxy Entertainment Group

Profits dip as The VIPs pull back

The high rollers may have slowed their pace but analysts predict better earnings ahead because of the increased exposure to mass gaming

PUBLISHED : Friday, 26 October, 2012, 12:00am
UPDATED : Friday, 26 October, 2012, 2:50am

Casino operator Wynn Macau yesterday reported a drop in third-quarter profit, deepening the gloomy outlook for Macau's gaming industry.

The casino operator's quarterly profit fell 3.1 per cent to US$203.3 million, with the lucrative VIP segment shrinking 12.1 per cent as high rollers pulled back.

"Looking into the fourth quarter, we forecast 7 per cent year-on-year gaming revenue growth," said CLSA consumer and gaming research analyst Richard Huang.

Revenue for the industry in the third quarter also grew 7 per cent, slowing from the previous quarter's 13 per cent growth, according to CLSA.

Deutsche Bank this week revised down its growth forecast for Macau's casino industry next year to 7 per cent from 11 per cent, and also cut its 2013 VIP gross gaming revenue growth estimate to zero per cent from 5 per cent.

But it may not be all bad news. A recent CLSA research note also said: "Despite slower growth, we see improving earnings quality with casinos having increased exposure to mass gaming."

Wynn Macau's revenue from VIP tables in the third quarter amounted to US$27.6 billion, compared with US$31.4 billion in the same period a year ago. Its revenue from mass-market table games increased 8.3 per cent to US$211.3 million.

The company's Las Vegas parent, Wynn Resorts, has just announced a huge dividend of US$8 per share. The news caused a rally in the shares of all the six casino operators in Macau, outpacing the 0.21 per cent gain in the Hang Seng Index yesterday. SJM rose 3.7 per cent, Galaxy Entertainment climbed 3.6 per cent while Sands China was up 3.5 per cent.

"The big dividend announced by Wynn had a positive effect on the whole sector as all Macau gaming operators could potentially pay a huge dividend," Huang said.

Meanwhile, Galaxy, another casino developer and operator in Macau, posted a 46 per cent jump in third-quarter earnings before interest, taxes, depreciation and amortisation (ebitda), its 16th consecutive quarter of growth, as its flagship casino on the Cotai strip that opened May last year received a steady stream of visitors from the mainland.

Galaxy's third-quarter ebitda amounted to HK$2.6 billion, compared with HK$1.8 billion a year earlier.

The company said construction of Galaxy Macau's phase II, which will double the size of the existing Galaxy Macau, was going according to plan, and would be completed in 2015.

Macau is the only place in China where people can legally gamble in casinos. The city has been developed into the world's largest gaming destination in terms of revenue, benefiting hugely from the robust mainland growth in recent years.

Macau has been feeling the chill of the cooling mainland economy, with the industry's year-on-year revenue growth slowing dramatically since May.