he city has seen a year-on-year rise in GGR for three consecutive months after 26 months of decline. The rebound from recession in the casino industry coincides with the opening of two new resorts, Wynn Palace and Sands’ Parisian, which are helping draw recreational gamblers to Macau.
S&P Global Ratings credit analyst Sophie Lin said the new casinos will drive gaming revenue growth. “New casinos will add non gaming attractions and hotel rooms, both of which should help attract mass-market gamers to Macau,” said Lin.
“Cannibalization could occur between new and existing casinos, but we believe the worst is behind the industry”
Wynn Palace and the Parisian Macao added about 4,700 hotel rooms to the city and hotel occupancy rates have resumed their year-over-year improvement since June 2016, staying above 80 per cent despite the substantial increase in rooms, according to S&P data.
Better infrastructure will be another growth driver, said Lin. Transport links connecting the Chinese mainland and Macau would boost visits by recreational gamblers, especially after completion of major projects such as the Gongbei Border expansion in 2018, and the Hong Kong Zhuhai Macau Bridge and Macau light rail in 2019.
Karen Tang, research analyst at Deutsche Bank, was also bullish on the gaming industry’s performance next year, expecting mass GGR growth to reach 12 per cent on the back of the return of the premium mass segment to Macau.
“We are positive on Macau’s mass market growth potential especially since industry has finally returned to growth after 8 quarters of decline,” said Tang, who warned that government regulations are the key downside risk for the sector
Lin said that although China’s ongoing anti corruption campaign remains a potential risk for the casino industry, Macau was shifting from VIP driven to mass-market driven growth which is less sensitive to regulations.
“The revenue shift to mass market underpins margin improvement,” said Lin, pointing out that the mass-market segment will account for about 50 per cent of total gaming revenue in 2017, up from 47 per cent in the first nine months in 2016. “Mass-market margins are normally in the range of 30 to 40 per cent, compared with about 10 per cent for the VIP segment,” she said.
Charlene Liu, head of gaming research at HSBC, raised her November GGR estimate to 18.5 to 19 billion patacas from a previous forecast of 17.4 to 17.9 billion patacas based on stronger-than-estimated growth.
The higher estimate translates into 16 per cent year-over-year growth or a 9 per cent month-on-month rise in November. That means November will likely see the fourth consecutive month of rising GGR, with the first 20 days of November yielding 12.7 billion patacas in GGR which translates into a daily run rate of 686 million patacas, compared to the daily average of 586 million patacas in the same period last year.
The non-gaming sector has emerged as a higher priority for the Macau government which is seeking economic diversification with more family-friendly projects to help draw visitors.
Non-gaming spending in Macau jumped an impressive 17 per cent year on year to 1,806 patacas per visitor in the third quarter, according to a Macau government survey.
The key contributor to the rise in non-gaming revenue is the increase in overnight visitors, which accounted for 52.8 per cent of the total compared with 48.1 per cent a year ago. Non-gaming spending rose 12 per cent year on year to 2,809 patacas per person in the third quarter.
Day-trippers also reported higher non-gaming spending at 703 patacas per person, 11 per cent up year on year
The recovery of the casino sector and non-gaming diversification helped Macau snap out of its two-year economic contraction. The world’s biggest casino market saw 4 per cent GDP growth in the third quarter, according to Macau government data. Macau Chief Executive Fernando Chui said the economy will recover to grow in the low single-digits in 2017.
The renewed growth in the city was driven by the rebound in gaming revenue and rise in non-gaming earnings after the Chinese government encouraged economic diversification in the gambling mecca.
In his visit to Macau in October, Chinese Premier Li Keqiang urged the city to diversify its economy to reduce its dependence on a single industry. One non-gaming initiative now under consideration by Macau is for it to become a “smart city”, using big data to reconfigure its systems in transportation, tourism, healthcare and government services.