Casino stocks fall on revenue worries

Gambling shares have tumbled amid signs that casino revenues in Macau may shrink further in the coming months.

Fitch Ratings yesterday slashed its forecast on the island's gaming revenue growth to 10 to 12 per cent from 15 per cent.

This is the second time in six weeks that the ratings agency has revised down its forecast. On June 8, it lowered its estimate from 20 per cent to 15 per cent.

The latest revision follows disappointing second-quarter results from Sands China, which saw net income fall 40 per cent to US$160.5 million from a year earlier, according to a filing to the Hong Kong stock exchange yesterday. Its revenue of US$1.48 billion also fell short of market expectations of US$1.52 billion.

Last week, Wynn Macau posted a 7.1 per cent drop in revenue in the three months to June, its first quarterly drop since 2009.

Sands China led the stock slump yesterday, with its shares plummeting up to 7.2 per cent at one point but climbing back to close 4.95 per cent lower at HK$21.15.

SJM Holdings, MGM China, Galaxy Entertainment and Wynn Macau all shed between 2.5 and 3.5 per cent.

Fitch said the opening of Sands China's Cotai Central casino resort in April would continue to exert pressure on other gaming facilities in the coming months as the market grappled to accommodate the additional supply amid an economic slowdown on the mainland.

Fitch observed that the gaming slowdown had gained pace since May, when the alarm was first raised as casino revenues grew only 7.3 per cent year on year. Although revenue growth rebounded to 12.2 per cent last month, it was still dramatically slower than the 34.8 per cent reported in January, and the 21.9 to 24.4 per cent between February and April.

Three investment banks said they expected gambling revenue growth in Macau to slow further to about 3 per cent this month. JPMorgan estimates that on Monday alone, Typhoon Vicente could have caused a revenue loss of 535 million patacas for the sector, apart from the impact on tourism in general.

Despite a gloomy near-term prospect, Edwin Fan, a gaming analyst at Bank of China International, said the sector should still see 8 to 10 per cent annual revenue growth in the next three years. 'The demand is still there, although you will no longer see an annual growth rate of 30 to 40 per cent, as in 2010 and 2011,' Fan said.

Fitch expects the next wave of gaming supply around 2015 and 2016, when a number of new hotels and casinos under construction by Galaxy Entertainment and Sands China come on stream.

On Wednesday, the Macau government approved an application by Melco Crown Entertainment to build a five-star hotel and film production facility on a 130,789 square metre land concession held by the company, a government gazette reported. The gazette did not specify if a casino would be built on the site, but such a project is widely expected.

$5b

Sands China's investment, in US dollars, to develop Cotai Central, the first phase of which opened in April