Place your bets: Singapore, Malaysia casinos more attractive than Macau, analysts say

As Macau casinos endure another disappointing month, investors may prefer the odds in Singapore and Malaysia where the gambling industry is showing it can weather headwinds.

Macau’s gross gaming revenue fell 32.3 per cent year on year in November, the eighteenth straight month of declines. Revenue has slumped by 35.3 per cent this year so far.

The result defied some predictions that business would pick up, as Studio City opened its doors and operators shifted their focus from the troubled VIP segment to the mass market, hoping that new player acquisition could outstrip attrition.

The mid-2016 opening of the Taipa Ferry Terminal provides some cause for optimism, particularly for the Cotai-based operators, but delays on the Hong Kong-Zhuhai-Macau bridge are causing analysts to cool their already mild expectations for next year.

Daiwa analysts predict a further 5 per cent decline in gross gaming revenue in 2016 and say the consensus view of a 1 per cent recovery is undermined by the lack of visible policy support for the sector.

In his policy address last month, Macau Chief Executive Chui Sai On forecast a 14 per cent year-on-year drop in gross gaming revenue in 2016. That would take the sector to its lowest ebb since 2010.

“Though Chui stressed that the estimate is ‘prudent and conservative’, we believe it signals the government’s expectation of further downside for the gaming sector,” said Daiwa analyst Jamie Soo.

Soo added the Macau government’s emphasis on “healthy development” of the gaming industry means more supervision and regulation governing junkets, development of non-gaming business and job protection for the local workforce.

Supportive policies like a relaxation of visa requirements or expansion of the individual visitor scheme were absent from the region’s policy address, but in any case, analysts say national regulations exert a greater influence over the sector’s fortunes.

“While some of the comments made by China appear to be sentimentally positive for

Macau, China’s ongoing anti-corruption campaign and its intention to stifle capital outflows should continue to cast a shadow over the sector,” Soo said.

For example, the recent suspension of cash withdrawal services offered by jewellery stores and pawnshops has put a clamp on liquidity for high rollers, while UnionPay ATM overseas withdrawal limits have stemmed growth in the mass segment.

Add a litany of overhanging risks – wage hikes for staff, a ban on smoking, depreciation of the yuan, the property slowdown crimping the spending power of mainland Chinese – and the sector doesn’t seem like a great buy just now.

BNP Paribas analyst Charlie Chen concurs that “it’s too early to jump in” and predicts further downside in 2016, with profit margin deterioration hitting all players as new casinos come online.

That’s where the Southeast Asian casino industry differs from Macau’s. Rather than adopting the “build it and they will come” approach, casinos in places such as Singapore are highly regulated with few players.

That’s where the Southeast Asian casino industry differs from Macau’s. Rather than adopting the “build it and they will come” approach, casinos in places such as Singapore are highly regulated with few players.

For example, the Singapore government has tried to avoid excess capacity by limiting casino operators to just Marina Bay Sands, owned by New York-listed Las Vegas Sands, and locally-listed Genting Singapore. Analysts say government officials are unlikely to grant additional casino licences, preserving the sheltered competitive environment.

The government remains concerned about potential problem gambling in the local population. Founding father Lee Kuan Yew famously quipped that he would permit gambling “over my dead body,” a stance that helps explain a 40-year casino ban that wasn’t rescinded until 2005.

Nowadays the muted outlook for Singapore inbound tourism is an issue.

Softening regional economic growth and China’s anti-corruption drive are among the negative factors that have knocked 10 per cent off Singapore’s gross gaming revenues this year, but Fitch analysts say the sector will return to stability in 2016 and may even manage some growth.

Malaysia is also suffering a slowdown in tourist arrivals, which are down almost 10 per cent this year. Cooling visitor numbers are one factor causing casino operators Genting Malaysia and Berjaya Sports Toto to miss recent earnings forecasts.

Nonetheless, Affin Hwang analyst Chue Kwok Yan recommends overweighting the sector owing to surprisingly good performance.

Meanwhile, Fitch said Malaysian and Singapore casino operators are “underpinned by the market’s domestic and mass-market focus, which provides defensive qualities.”

Fitch noted that these companies have limited competition and manageable debts, which should help put them on the right foot next year.