Macau Gaming Regulators Approve New Mass Market Tables, Analysts Remain Bullish on Enclave

Posted on: January 21, 2019, 11:05h. 

Last updated on: January 21, 2019, 11:05h.

Macau gaming regulators are signing off on new-to-market mass gaming tables for two casino operators in the enclave.

Macau gaming tables casinos
Macau gaming officials have approved new tables at MGM Cotai. (Image: Jerome Favre/Getty)

The Gaming Inspection and Coordination Bureau – stylized as DICJ – has approved 50 new mass market table games for Melco Resorts, and 25 for MGM China. The latter tables weren’t specified as to whether they will be for VIP or general public play.

Melco wants to expand its gaming operations at Morpheus, the $1.1 billion hotel resort at its City of Dreams property. MGM is placing the 25 new tables at MGM Cotai, which opened in February of 2018.

Enclave laws only permit gaming tables to increase at a rate of three percent growth every 10 years. The DICJ reports that there were 6,588 table games in operation last year.

Analysts Optimistic

Macau casinos are coming off a $37.5 billion year. Gross gambling revenue (GGR) surged 14 percent to record the enclave’s highest total since 2014.

2018 was a winning year on the casino floors, but that didn’t necessarily correlate to Wall Street gains. Gaming stocks for the six licensed operators fell sharply over the last half of the year. The ongoing trade war between China and the US, and an economic slowing in the People’s Republic, was cited for the declines.

The Vaneck Vectors Gaming ETF (exchange-traded fund), an index of 42 gaming company stocks, was down 26 percent over the last year. The NASDAQ lost just 4.4 percent during the same time.

Regardless, Morningstar analysts are bullish on the year ahead.

Despite fears around a trade war and China’s economic slowdown, the narrow-moat Macau gaming market’s competitive positioning and demand remain strong,” Morningstar’s Chelsey Tam said in a note. “We believe the current weak sentiment presents a good buying opportunity for long-term investors.”

Tam believes the Macau gaming industry will cool in terms of GGR in 2019. She forecasts a “low single digits” decline.

Mass Market Focus

Casino operators have sought to reduce their reliance on high roller VIPs in recent years. Resorts have diversified to cater to more of the general public, and it’s lead to higher profits.

JPMorgan analysts DS Kim and Sean Zhuang differ from Tam’s 2019 forecast. They instead believe that Macau casinos will actually increase GGR in the single-digit range. But they do share the viewpoint that the six licensed gaming operators in Macau present buying opportunities.

“Most of the negatives are well known and already – if not overly – priced in,” Kim and Zhuang explained last week. “The trends in Macau have been surprisingly resilient despite a very challenging macro backdrop and ever-growing concerns over a downturn.”

Billionaire Lawrence Ho, the founder and CEO of Melco Resorts, says margins are much better on the mass market than the VIP. “Our usual margin is four times higher,” he explained last year.

Once a rather isolated territory, Macau is today easily accessible via car due to the recent opening of the Hong Kong-Zhuhai-Macau bridge, a 34-mile bridge that connects the two territories. The Macau Government Tourism Office says a record 35 million people traveled to the enclave last year.