Macau gaming revenue has stabilised but don’t expect a ‘V-shaped’ recovery, says Fitch

Ratings agency sees a 5 per cent full-year revenue decline, after a drop of 9.1 per cent in the year to August 31

PUBLISHED : Wednesday, 14 September, 2016, 9:14pm
UPDATED : Wednesday, 14 September, 2016, 10:57pm

Ratings agency Fitch believes Macau’s gaming revenue may be stabilising after its two-year slide ended last month, but it remains cautious about the extent and speed of a recovery.

Fitch forecasts a 5 per cent revenue decline for the whole of 2016, after a drop of 9.1 per cent in the year to August 31. Macau’s gambling revenues gained 1.1 per cent year-on-year in August to 18.8 billion patacas, ending a 26-month contraction streak and signalling the possible start of a revival for the world’s largest gambling hub.

Macau is attempting to reinvent itself as a destination with mass-market appeal that attracts tourists and shoppers as well as high-rolling VIP gamblers. Big-spending punters have shunned the former Portuguese colony since Beijing began a crackdown on corruption and ostentatious living.

The mass market will be the main driver of growth in Macau’s gaming sector, said Alex Bumazhny, a senior director of corporate ratings at Fitch on Wednesday.

He believes the August data suggests the market has found solid footing, and said the openings of Wynn Palace in August and the Parisian this month will boost the casino market’s performance in the second half of the year.

“I am not one hundred per cent sure that the new opening of Wynn Palace in late August contributed to the recovery, but the August data did rebound,” he said.

As well as gaining momentum from the new openings, Bumazhny expects the mass market to benefit from the fact that resorts on the Cotai Strip are becoming more family-friendly and expanding their entertainment amenity offerings.

Transportation infrastructure in Macau has also been improving, with additions such as the bridge to Hong Kong, a permanent Taipa ferry terminal, a rail link to Guangdong Zhuhai airport and the intra-city light rail. The improved transportation is expected to attract more tourists and recreational gamblers to the only Chinese city where gambling is legal.

“We expect the returns on investment to improve over time as the market pivots to the mass market segment and the infrastructure projects come online,” said Bumazhny.

However, Fitch sees a “V-shaped” recovery as unlikely for Macau’s gaming industry, with the market still susceptible to the weak economy and stricter regulations.

Bumazhny said: “The hard landing of China’s economy is the biggest risk for Macau’s gaming industry. And we believe the appetite for luxury activities remains tepid on the mainland amid the economic slowdown and the corruption crackdown.

“And the recovery of Macau’s mass market will still mainly rely on mainland and Hong Kong recreational gamblers rather than international tourists in the current situation.”