Tourism boom already driving Macau growth, Nomura

Casino giants are starting to benefit from stable growth in Macau’s tourist numbers, as the gaming industry increasingly depends on casual gamblers instead of high-rollers, according to new research report.

New transportation infrastructure will also help the tiny southern Chinese gaming hub, which still lacks many tourism facilities as well as long-haul flights that can deposit visitors from further away, analysts at Nomura said.

Contributions from big-spending VIPs are expected to drop to 12 per cent of total operators’ earnings this year from 34 per cent in 2012, before reaching 10 per cent 2018, according to Nomura analysts Richard Huang and Joyce Yang.

On the flipside, the mass market will grow to 71 per cent this year from 54 per cent five years ago, while the non-gaming contributions will expand to 17 per cent.

“New tourism facilities will make Macau more like Las Vegas,” Huang said. “It can be a holiday resort, and not necessarily just a gaming hub.”

The city’s gambling sector has been hammered in the past few years as China’s anti-corruption campaign kept some of the biggest-spending punters away.

Many venues have shifted their focus to middle-class travellers by offering more retail and entertainment options at their resorts, making the mass market the major driver of profit growth.

Huang said the transformation has helped to shield the major gaming companies from the negative impact of China’s graft crackdown, and the effects of increased capital controls.

Macau’s gaming revenue posted a 3.1 per cent rise in January, the sixth consecutive month of growth after more than two years of declines. The recovery was helped by improving mainland tourist numbers, which increased 7.8 per cent in December.

But growth in tourism has been stifled, too, by poor infrastructure. Macau’s border facilities have low capacity, while its small airport cannot handle big planes.

Analysts say the completion of a new ferry terminal and the Hong Kong-Zhuhai-Macau bridge will help tourism growth, and the casino operators.

Huang said the bridge will bring in tourists from further away by making it easier to travel to the gaming resorts from Hong Kong International Airport.

“It will attract more conference and exhibition clients, too,” Huang said. “With the bridge, it takes the same time to travel from Hong Kong airport to Macau as it takes to go to Central.”

The ongoing development of tourism attractions on the neighbouring Hengqin Island, a free-trade zone on the mainland, will also make Macau more appealing, he said.

The city’s overall gaming revenue is now expected to rise annually at an average six per cent in the coming three years, Nomura reckons, with the mass-market revenue growing at nine per cent.

Although revenue from VIP tables also picked up recently, the analysts say the highest spenders are unlikely to return in large numbers.

“There is little space for the high-end market to improve,” Huang said. “The anti-corruption policies are not going to be changed suddenly. And with the yuan staying weak, China’s capital controls are unlikely to be loosened.”

Analysts say Macau’s gaming sector is slightly undervalued by investors. Shares in the casino operators have gone down about 10 per cent from their peak last year, with MGM China Holdings, Galaxy Entertainment and SJM Holdings now traded at the largest discounts, according to the report.

The proportion of gaming revenue from the mass market will expand 0.5 to 2.6 per cent for MGM and SJM, which will help their earnings grow at an annual 10 to 19 per cent from 2017 to 2019.

Galaxy was recently upgraded to “Buy” with a target price of HK$43.2 because of its “best long-term growth pipeline”.

The casino operator has said it would allocate substantial floor areas in its Galaxy Macau phase three and four resorts to non-gaming functions such as corporate events, entertainment and family facilities.

The company’s plans to explore overseas markets also make it stand out from its rivals, according to Nomura.

Galaxy is currently traded low due to lack of progress on its long-term projects, but the shares may rise after the company gives more concrete updates in its results announcement next Tuesday, the report said.