Across The Border

Analysts douse fears that Chinese premier’s visit to Macau will threaten casino rebound

Bloomberg says last time a top Chinese leader visited Macau, the trip heralded a two-year gaming downturn that only saw a recent return to growth

PUBLISHED : Thursday, 06 October, 2016, 4:13pm
UPDATED : Thursday, 06 October, 2016, 10:30pm

The Chinese premier’s confirmed visit to Macau next week has agitated some casino players and investors in the city, who have suggested his appearance could threaten the city’s nascent, yet still fragile recent recovery.

But few analysts covering the Special Administrative Region and its huge gaming industry share the same fears.

Li Keqiang is visiting Macau on October 10 and 12 to attend the opening ceremony of the fifth Ministerial Conference of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking countries. Other leaders will include the prime ministers of Portugal, Cape Verde and Mozambique.

Official data from Macau Gaming Inspection and Coordination Bureau shows casino revenue jumped for the second straight month in September, rising 7.4 per cent year on year to 18.396 billion MOP (HK$17.86 billion) following a 1.1 per cent gain in August, renewing hopes of a sustained rebound in casino takings. Those ended 26 straight months of casino revenue declines.

Two reports, from Union Gaming and Nomura, have suggested Li’s visit will scare off high-rollers in October, and possibly break the city’s winning streak in gaming revenue.

Bloomberg has also reported that the last time a top Chinese leader visited Macau, the trip heralded a two-year downturn in the world’s largest casino hub that only saw a recent return to growth.

President Xi Jinping was there in December 2014, and ordered Macau to diversify its economy from gambling, while reinforcing a national corruption drive that immediately hammered Macau gaming figures.

But analysts contacted by South China Morning Post said they thought his visit is unlikely to affect what has started to be a more positive atmosphere in the city.

Li’s visit would have brought a serious negative impact on Macau’s gaming business during the golden week national holiday
Angela Han, analyst, China Merchants Securities

Angela Han, a Hong Kong-based analyst from China Merchants Securities said: “Li’s visit could have brought a serious negative impact on Macau’s gaming business during the golden week national holiday, from October 1-7,” but as he is coming after the holiday, “there will be less gamblers around especially, VIP customers”.

The latest official Macau figures show visitors to the city increased in the first five days of the national holiday, with mainland arrivals jumping 7.3 per cent to 723,544, while the total visitor arrivals increased 8 per cent to 852,755.

Sophie Lin, a Hong Kong-based analyst at the ratings agency S&P Global, doubts Li is planning any measures or announcements during his visit which might affect market sentiment, insisting the “negative impact will be limited”.

She does, however, expect a weaker performance in the second week of October because Li’s presence may reduce traffic around the city, making it inconvenient for casual gamblers to simply get around. But there is unlikely to be any long-lasting effect, she adds.

Credit Suisse’s Kenneth Fong has written in a latest report that the central government actually seems “more supportive to Macau, especially on the development of non-gaming activities”.

Han from CMS said that the government could in fact use the premier’s visit to announce “positive news, such as allowing more Chinese provinces to join the Individual Visit Scheme –but that would be a surprise to markets”.

That scheme began in 2003 and allows residents of 49 mainland cities to visit Hong Kong and Macau in an individual capacity, rather than in tour groups. Before then, Chinese residents could only travel to both with business visa or as members of an organised group.

Across Macau’s gaming industry, many investors have started reporting fundamental recovery signs in recent weeks, after the major players have transformed their business models.

Some have introduced more family-friendly casino resorts to attract casual gamblers and recreational travellers rather than high-stakes gamblers.

Two high-profile openings in the past month have also attracted huge global attention, the much-anticipated Wynn Palace and the Parisian Macao hotel-casino resorts, which experts are hopeful will give a further boost to visitor numbers and earnings.

The ongoing Hong Kong-Zhuhai-Macau Bridge also reached a historical milestone last week with the completion of the main body of the structure, connecting the Chinese city of Zhuhai to Macau and Hong Kong. The 55-kilometer-long structure is the world’s longest sea-crossing bridge and is earmarked to be ready within the next three years.

When in operation, the link is expected to cut the journey between Macau, Zhuhai and Hong Kong from over three hours by land or over one hour by sea to just 30 minutes.

“With the new projects launched and improved a transportation system as well as reducing hotel prices in the city, I see a gradual improvement in the Macau casino industry, mainly driven by increasing mass market customers ” said Lin.

Lin is confident the second half of this year will see less sharp declines than the first half driven, helped by the new projects, and rising numbers of recreational gamblers.

But ratings agency S&P still predicts Macau casino revenue could drop up to 10 per cent this year, but next year is expecting profit gains in single digits.

Han from CMS notes that climbing revenues do not guarantee any rise in casino stocks, however.