Time to roll the dice

Af­ter a gloomy 2014, Ma­cao gam­ing rev­enue has yet to hit the jack­pot but an­a­lysts be­lieve for­tunes will turn. Emma Dai re­ports.

China Daily (Canada) - - FRONT PAGE -

One can hardly imag­ine that the tiny city of Ma­cao, al­ready chock­ablock with 35 casi­nos, could bear to fit in even more. And yet that is ex­actly what the gam­ing mag­nates have in mind.

Ma­cao’s Co­tai area, a 5.2-squarek­ilo­me­ter piece of re­claimed land, is ef­fec­tively a mas­sive con­struc­tion site. Count­less cranes swing over­head, build­ing dozens of gam­ing re­sorts along its high street, Co­tai Strip — some al­ready glit­ter­ing with glass cur­tains in place, oth­ers still cov­ered in dusty scaf­fold­ing. A line of con­crete pil­lars rise to the sky, point­ing to the light rail ser­vice sched­uled for 2016.

In Jan­uary, Lawrence Ho Yau-lung, CEO of Melco Crown En­ter­tain­ment and son of leg­endary casino ty­coon Stan­ley Ho Hung-sun, un­veiled de­tails of his newly de­vel­oped Stu­dio City, a $3.2-bil­lion gam­bling com­plex.

Switch­ing fo­cus from high rollers to mass-mar­ket gam­blers, Melco plans to open a fam­ily en­ter­tain­ment cen­ter fea­tur­ing Time Warner icons and a Bat­man vir­tual re­al­ity ride. To show­case its ex­trav­a­gant project, the com­pany even spon­sored a short movie, di­rected by Os­car-win­ner Martin Scors­ese and star­ring Hol­ly­wood su­per­stars Leonardo DiCaprio, Robert De Niro and Brad Pitt.

That came as Lui Che-woo, the gam­ing baron who con­trols Galaxy En­ter­tain­ment Group, said the casino op­er­a­tor is poised to open phase two of Galaxy Ma­cau, dou­bling the size of the re­sort, on May 27.

Also un­veiled the same day will be the ren­o­vated for­mer Grand Waldo Com­plex, re­named Broad­way at Galaxy Ma­cau. Cap­i­tal ex­pen­di­ture for the two projects amounts to HK$43 bil­lion.

“What we’ll do is make it more di­verse, from en­ter­tain­ment, leisure, cul­ture and art, we will con­tinue to ex­pand,” Lui said at a press con­fer­ence in Hong Kong on Jan 22.

But be­hind the hus­tle and bus­tle, the Ma­cao gam­ing in­dus­try is en­dur­ing a chilly win­ter. Gam­ing busi­ness has been in con­trac­tion, af­ter ex­pand­ing rapidly for at least more than four straight years.

Monthly gross gam­ing rev­enue (GGR) has been fall­ing since last June, with De­cem­ber GGR decline deep­en­ing to 30.4 per­cent com­pared with a year ago. As a re­sult, 2014 recorded 2.6 per­cent on-year decline in ac­cu­mu­lated gam­ing rev­enue, data from the Gam­ing In­spec­tion and Co­or­di­na­tion Bureau of Ma­cao (DICJ) show.

Stocks of casino op­er­a­tors have also tum­bled. SJM Hold­ings Ltd plunged al­most 54 per­cent from last spring’s high of HK$25.55 to HK$11.86 on Jan 29, while Galaxy En­ter­tain­ment dived 46 per­cent from HK$78.25 on last Feb 27 to HK$42.10 apiece on Jan 29. BI In re­sponse, Ma­cao Chief Ex­ec­u­tive Fer­nando Chui Sai-on promised that his new ad­min­is­tra­tion, which took of­fice only in De­cem­ber, would bring for­ward the in­terim re­view of the gam­ing sec­tor from the sec­ond half this year to the spring.

The pol­icy un­cer­tainty would lead to volatil­ity in the eq­uity mar­ket, warned Billy Ng, head of Asia gam­ing at Bank of Amer­ica Mer­rill Lynch Global Re­search. He es­ti­mates that the re­view will likely tar­get high rollers and in­tro­duce ad­di­tional anti-money laun­der­ing rules, as “reg­u­la­tion could al­ways be tighter” to in­ter­cept cap­i­tal flight from the main­land.

Mean­while, chances that the smok­ing ban would be ex­tended to VIP ta­bles as well are “pretty high” this year, and this would cast a “neg­a­tive im­pact” on rev­enue per­for­mance and see the “GGR tum­ble fur­ther, es­pe­cially in the first quar­ter”, Ng said.

How­ever, he added that such ac­tions on VIP busi­ness will likely do less harm to casino op­er­a­tors, given the seg­ment now only ac­counts for around 30 per­cent of their earn­ings.

Given a high com­par­a­tive base and the per­ceived wait for the other shoe to drop, Mer­rill Lynch es­ti­mates an­nual GGR will fall 10 per­cent in 2015, with the first half ex­pected to post a 24.7 per­cent decline and the sec­ond half a 4.2 per­cent re­cov­ery.

“We hope the gov­ern­ment could an­nounce the bad news in the first half — if they are to adopt new rules any­way. Share prices can only re­cover when the bad news is priced in,” Ng said.

The ta­bles may look less than invit­ing at the cur­rent stage, but the fu­ture is al­ways worth bet­ting on. It is ex­pected by some play­ers that new sup­plies will reignite the gam­ing floors of Ma­cao.

“Resur­gence in Ma­cao’s casino rev­enue growth may oc­cur with the open­ing, in rapid suc­ces­sion, of eight mega projects, start­ing in the mid­dle of 2015,” said Tim Craig­head, se­nior gam­ing an­a­lyst at BI, in a re­cent re­port.

“The long-held the­sis that Ma­cao casino in­dus­try growth is con­strained by the sup­ply of ho­tel rooms will again be put to the test.”

Three new re­sorts — Phase 2 of Galaxy Ma­cau, Stu­dio City of Melco and Sands China’s The Parisian — will open this year. The ex­pan­sion will end Ma­cao’s long­est pause in build­ing re­sorts since 2012 and trig­ger a 40 per­cent in­crease in ho­tel room sup­ply. Three more have been sched­uled for next year and 2017.

The last three re­sorts that opened on the Co­tai Strip sparked a surge in rev­enue for their op­er­a­tors. Sands China’s rev­enue av­er­aged 38 per­cent on-year growth dur­ing the six quar­ters af­ter Co­tai Cen­tral opened in 2012, while Galaxy’s rev­enue jumped 94 per­cent dur­ing 2010 and Melco Crown posted a surge of 105 per­cent in 2011. “Th­ese il­lus­trate how Ma­cao is a sup­ply-driven mar­ket,” the BI re­port pointed out.

But the bears still have a case, given the new re­sorts would boost de­mand in the la­bor mar­ket, adding an es­ti­mated 50,000 jobs, whereas Ma­cao’s un­em­ploy­ment rate is al­ready just 1.7 per­cent. Ris­ing la­bor costs must put a con­sid­er­able squeeze on mar­gins, Craig­head said.

“Gam­bling ta­bles are fi­nan­cial en­gines to us, with­out which we wouldn’t be able to build and op­er­ate non-gam­ing at­trac­tions,” said Lawrence Ho at the Jan­uary press con­fer­ence.

Ho said he had no idea how many ta­bles Stu­dio City is go­ing to be granted, though the re­sort has been built with a ca­pac­ity of 500 ta­bles. “It’s in the hands of the au­thor­i­ties,” he said.

“How­ever, we are con­fi­dent be­cause the gov­ern­ment said al­lo­ca­tion of new ta­bles de­pends on con­tri­bu­tion to the di­ver­si­fi­ca­tion of Ma­cao. And 95 per­cent of our prop­er­ties are non-gam­ing. We even in­vested in a short movie to pro­mote the city,” Ho pointed out. Con­tact the writer at em­madai@chi­nadai­lyhk.com


Ma­cao’s smok­ing ban on mass­mar­ket casino floors and tighter visa rules for main­land vis­i­tors are putting the squeeze on rev­enue.

Tim Craig­head, direc­tor of Asian re­search and se­nior gam­ing an­a­lyst at Bloomberg In­tel­li­gence

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