Bernstein Trims Fourth-Quarter Macau Estimates, Sings Familiar Refrain of VIP Weakness

Bernstein analysts pared fourth-quarter earnings estimates for the six operators in Macau, noting an often-cited catalyst this year: sluggishness among high-end players.

The research firm said it expects Macau gross gaming revenue (GGR) for the current quarter to decline seven percent on a year-over-year basis, down from a previous estimate calling for a five percent drop. Bernstein analysts see mass market revenue climbing nine percent in the October through December period, not nearly enough to offset an expected 17 percent tumble in VIP turnover.

Q4 has shown negative quarter-on-quarter GGR only once in the past decade, in 2014 (-8% on sequential declines in both VIP and Mass),” said the Bernstein analysts in a recent research note.

Recent data from the Macau Statistics and Census Service (DSEC) indicates that visits to the Asian gambling mecca were up 17 percent through the first nine months of 2019. But amid sluggishness in the Chinese economy and that country’s trade flap with the US, gamblers haven’t been spending as much as they did in previous years.

Lawrence Ho, chairman of Melco Resorts & Entertainment, said macroeconomic factors, including devaluation in the Chinese currency, are hampering Macau this year.

“I think the consumption is certainly less than in previous years a little bit because, if anything, the visitation numbers continue to be strong,” said Ho in an interview with CNBC.

VIP Risk

Slack VIP revenue has been a prominent theme for some Macau operators throughout 2019. Earlier this month, Wynn Resorts Ltd. (NASDAQ:WYNN) delivered a disappointing set of third-quarter results. That’s after trimming July and August estimates for its China business, due in large part to expected weakness among big spending gamblers.

During the most recently completed quarter, “operating revenues decreased $132.4 million and $105.3 million at Wynn Palace and Wynn Macau, respectively, from the third quarter of 2018,” according to the company.

Rival Las Vegas Sands (NYSE:LVS) reported disappointing July through September Macau numbers as well, notching turnover of $2.11 billion, below the $2.13 billion Wall Street expected. Broadly speaking, analysts haven’t been as harsh in their treatment of LVS shares because the company is one of the biggest peninsula players in the mass and premium mass markets, providing some buffer to VIP spending declines.

Overall, A Rough Year

Bernstein’s call for a mass market fourth-quarter revenue increase of nine percent is above a previous projection of five percent, and the research firm notes last quarter marked the first time baccarat turnover on the peninsula was even among mass and high-end players.

While there are some green shoots in the mass market, those likely won’t be enough to prevent 2019 from being one of the roughest years on record for Macau operators.

“Over the past 10 years, quarter-on-quarter growth in other years has been anywhere from +14% (2015) to +16% (in 2010), averaging over 6% since 2010,” according to Bernstein.