Macau July gambling revenue up 48 % and outpaces expectations

July revenue was us$ 3.01 billion, the second highest gain this year and just shy of May's record us$ 3 billion that was attributed to a week-long public holiday and the opening of a new casino resort.

Macau, a major market for U.S. casino operators including MGM China Holdings , Sands China and Wynn Macau , is likely to post full-year revenue more than five times higher than that of rival Las Vegas. Analysts were surprised by the strength of July's gaming numbers, with most predicting us$ 2.7 billion to us$ 2.8 billion.

“The Chinese are just too in love with gaming," said Victor Yip, analyst at brokerage UOB Kay Hian in Hong Kong. "I think in the last week there was some very strong luck in one or two particular casinos that drove the whole gross gaming revenues up."

A maze of glitzy facades and kitsch interiors, Macau is the only place Chinese people are allowed to legally casino gamble. Since the arrival of U.S. casino giants in 2004, Macau has evolved from a seedy hub rife with piracy and smuggling into a more upscale destination brimming with luxury shops and expensive restaurants.

Shares skyrocket
Casino shares skyrocketed on Monday with Galaxy Entertainment up 8.7 %, Sands China up 7.7 %, Wynn Macau up 6 %, MGM China up 4.4 %, SJM up 6.8 % and Melco International Development up 7 %.

Shares of Macau casino operators have surged over the past year. Galaxy, owned by Hong Kong property construction tycoon Lui Che Woo, has more than tripled in value and SJM, controlled by the family of Macau kingpin Stanley Ho, has more than doubled.

Billionaire Sheldon Adelson's Las Vegas Sands and casino mogul Steve Wynn's Wynn Resorts posted strong second quarter profits, bolstered by stellar growth in their Macau casinos.

Macau operators are not without their risks. Heavily dependent on China's high rolling VIP sector, which contributes 80 % of gaming revenue, the segment is vulnerable to a tightening of credit impacting the amount of liquidity available to China's super rich. The VIP sector relies on junkets, middle men who act as loan sharks to Chinese gamblers, helping them bypass currency restrictions and taking responsibility for debt collection.

The system helps operators, who pay junkets a chunky commission fee for their services, gain access to China's elite as direct marketing of gambling is prohibited in the mainland. Uncertainty over the renewal of licenses for the six casino operators when they start to expire in 2020, is starting to impact the ability of firms to secure funding from foreign lenders.

MGM China, Galaxy Entertainment, SJM and Melco Crown International are due to post second quarter earnings later this month.