Macau's gaming revenue expected to rise 14 percent in 2018

Two years after the impact on the industry derived from the severe state restrictions and the corruption allegations cast upon the Chinese government, gaming earnings in Macau are expected to regain momentum next year according to a survey carried out by Bloomberg. The average forecast is for gaming revenue to rise 14 percent in 2018, although experts warn any unexpected policy changes out of Beijing could crimp growth. 

The biggest driver of the industry's recovery are expected to be VIP gamers in the first place, followed by the flood of leisure tourists curious about the new casinos and attractions opening on Macau’s equivalent of the Las Vegas strip, Cotai. 

In 2018, two new casinos from the local unit of MGM Resorts International and Hong Kong’s SJM Holdings Ltd. are set to open in Cotai. With that, all six Macau operators will have a presence on the strip that the industry has sought to transform into a family-friendly zone. The investments in European-themed resorts and fancy spas are poised to boost profitability even more next year as the companies attract more “mass-market” gamblers. These leisure tourists offer higher margins to companies because they don’t need perks like private jets or discounted hotel rooms. Visitors to the city will rise 7 percent next year, Deutsche Bank AG estimates.

Macau casino stocks surged Wednesday in Hong Kong, with several touching 2014 highs. MGM China Holdings Ltd. rose 2.3 percent in Hong Kong Wednesday, paring gains. Share of Sands China Ltd. and SJM Holdings Ltd. advanced 1.6 percent. The benchmark Hang Seng Index fell 0.1 percent.

In January, MGM China opens a casino which will boast 1,400 hotel rooms, a theater equipped for 2,000 people and even one of the world’s biggest chocolate fountains. The $3.3 billion resort will relieve pressure on the company, which has been losing market share, and Deutsche Bank analyst Karen Tang estimates the firm’s revenue will grow more than 70 percent in 2018.

Still, both MGM and SJM are latecomers to Cotai and “likely to face stiff competition,” said Daiwa Capital Markets Hong Kong Ltd.’s analyst Jamie Soo. By his estimates, both will stay far behind larger players like Sands China and Galaxy Entertainment Group in overall market share. The last entrant on Cotai, SJM, has been the biggest market share loser in recent years and could drop further behind in 2018.

The big four, Sands, Galaxy, Wynn Macau and Melco Resorts & Entertainment, are likely to stay fairly stable in their market share. The largest two, Sands and Galaxy, are each expected to increase adjusted Ebitda, or earnings before interest, tax, depreciation and amortization, by at least 11 percent next year over 2017 forecasts, analyst data compiled by Bloomberg show.

Wynn and Melco gained the most market share in the last 3 years with new Cotai properties, according to company statements.

On the side of the risks, they include Macau facing another slowdown if there are any unexpected pressures on the Chinese economy and consumer spending, or if Beijing makes any unforeseen moves to curb capital outflows.

At the moment, though, analysts are predicting steady growth for 2018. Morgan Stanley analysts, for instance, project the sector’s earnings could rise to about $8.4 billion in 2018 before reaching an all-time high of $9.6 billion in 2019.