he numbers, illustrating “diminishing negatives” in the words of JP Morgan analysts DS Kim and Daisy Lu, are an opportunity for a reality check amid a variety of fantasies circulating around Macau as it tries to pivot from a VIP oriented destination to one focused on the mass market.
Union Gaming analyst Grant Govertsen in Macau parses the first quarter numbers exhaustively. The headline numbers from Macau’s Gaming Inspection and Coordination Bureau (known by its Portuguese acronym DICJ) show first quarter mass market revenue of 25.8 billion Macau patacas (MOP; US$3.2 billion), down 5% from a year earlier.
But Union Gaming contends – and other observers agree – that the official numbers understate mass revenues due to the reclassification of tables to VIP to skirt the smoking ban in mass market gaming areas that took effect in late 2014. Based on variances between numbers reported by DICJ and by operators that presumably call a mass a mass, Union estimates actual first quarter mass revenue grew 3% to 4% to around MOP27.7 billion. That would represent the first mass market year-on-year quarterly increase since the first quarter of 2014, but hardly a growth tsunami after two resort openings last year.
Union also says Q1 was the third consecutive quarter where mass revenue represented a majority of Macau’s total, weighing around 53% of all gaming revenue. “Despite the continued y/y declines in total GGR [gross gaming revenue], the notably better mix of business within the total number – driven by higher-margin higher-visibility mass – helps support the recent rally in shares.” In a similar vein, Sanford Bernstein research stresses that while Macau’s overall visitor numbers are falling, overnight visitors are rising. More rooms from last year’s hotel openings, plus fewer keys reserved for VIPs, have boosted supply and, as Wells Fargo Securities notes, room rates continue to decline, on average 18% lower than the levels of last September/October.
JP Morgan sees the opening of Wynn Palace, now expected in early August, perhaps on the auspicious date of 8/8 (in Chinese, the number eight sounds like the word for wealth), as a potential inflection point for Macau gaming performance and shares, amid second quarter earnings reports. Many analysts are notably enthusiastic about Steve Wynn’s Cotai property, which will vastly increase the operator’s room and table count. Some note that Sands China’s Parisian, controlled by Sheldon Adelson and due to open later in the year, will have far less incremental impact on that operator’s profile, never mind Sands China’s established expertise in courting mass market customers. Many also believe in the aura of Wynn as a creator of best-in-class, aspirational properties, assuring that, based on previews, Wynn Palace will not disappoint on that score.
But even if Wynn Palace is the right place, Morgan Stanley analysts Praveen Choudhary, Alex Poon and Thomas Allen suggest it may be arriving at the wrong time: “Mass revenue per day has remained around MOP300 million per day in the last nine months without noticeable recovery. This is despite two casinos and 3,000 hotel rooms opening and recovery in Chinese overnight visitors growth in the last year. However, it was mainly driven by industry hotel RevPAR [revenue per available room] decline of 20% YoY, which attracted customers who spent less per capita. Mass table revenue per room night sold in Cotai fell 4% QoQ and 20% YoY in 4Q15. We agree that Wynn Palace could attract some pent up demand, but the industry outlook has not recovered yet, in our view.”