International edition
September 23, 2021

Even Macau gross gambling revenue fell in June from May's record high

Investors bet on Hong Kong casino operators

(Hong Kong).- Most Hong Kong casino shares shone even against Friday's bright market performance, and some remain upbeat on the sector despite a recent slowdown in Macau's gambling revenue.


ross gambling revenue in June in the former Portuguese colony on China's southern coast fell 20% from May's record high, likely because the World Cup distracted high-stakes gamblers. Still, revenue jumped 65% from a year earlier. Gross gambling revenue is the amount wagered minus the winnings returned to players, which measures what a gaming operation earns before taxes, salaries and other expenses are paid.

June revenue totaled us$ 1.2 billion, compared with the us$ 2 billion recorded in May, according to data released earlier this month by Macau's Gaming Inspection and Coordination Bureau. The development of Macau's Cotai Strip is still the biggest wild card in the long term, analysts say, which could be boom for not just the companies with a Cotai presence, but for the overall sector as well.

"In our view, all six operators will benefit if a critical mass is created at Cotai, attracting more tourists to visit Macau. If Cotai fails, not only Cotai casino operators will suffer, Peninsula players will also get hurt, as their growth opportunity also lies in Cotai," said Citigroup analyst Anil Daswani in a note to clients Friday.

Sands China and Galaxy Entertainment Group remain Citigroup's top picks, as they are the only operators with new casinos opening in Cotai in 2011, Daswani said. On Friday, shares of SCL and Galaxy were both up 1.5%, while Hong Kong's Hang Seng Index was up 1.4%. China's Shanghai Composite rose 0.5%. Tycoon Stanley Ho's SJM Holdings  was up 1.8%. But Wynn Macau slumped 0.9%.

Wynn Macau's U.S. parent, casino operator Wynn Resorts, said that the preliminary second-quarter operating loss for Wynn Las Vegas widened to us$ 17.2 million from us$ 8.3 million a year earlier, even as its revenue increased 1.7% to us$ 318 million. In regional trading, Japanese Nikkei Stock Average rose 1.8%, and the broader Topix added 1.5%. Australia's S&P/ASX 200 climbed 1.8%, and South Korea's Kospi was 0.7% higher.

The Las Vegas Sands will release its second-quarter results next Wednesday. Citigroup's Daswani forecasts, its Macau subsidiary, to have grown net revenue by 37% from a year earlier to us$ 1.01 billion, thanks to Macau's strong second-quarter gross gaming revenue.

"We believe that Sands China's decision to shift its focus towards direct VIP business has led to junket VIP business migrating from SCL to Wynn Macau. Our channel checks seem to echo our view," Daswani said.

Tour operators' commissions on the organized junkets to Macau from mainland China can squeeze margins, even on high-end VIP junkets, so analysts say the direct VIP business can be significantly more lucrative for operators.

SCL currently has about a 19% market share, down 3 point from last month, Daswani said, but the loss "is not necessarily a bad thing" for SCL if it can offset this by increasing the volume at its direct VIP business.

According to Citigroup's channel checks, Macau's gross gambling revenue for the first 18 days of July reached 8.9 billion patacas, up 77% from a year earlier and up 2% from the previous month. Citigroup has a buy rating on SLC, but nonetheless there is a risk that investors will reduce their portfolio weightings in Macau in the months ahead, particularly if gaming revenue growth continues to slow.

Other Macau casino operators include Melco Crown Entertainment MGM Macau, a joint venture between Pansy Ho and MGM Resorts International (MGM).

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