Macau Gross Gaming Revenue Outlook Slashed by Leading Analyst, Trump Tariffs Could Hurt Enclave

Posted on: July 10, 2018, 02:00h. 

Last updated on: July 10, 2018, 02:02h.

Nomura analysts are slashing their Macau gross gaming revenue (GGR) yearly outlook through 2020 from 14 percent growth to nine percent.

Macau gross gaming revenue casino
Financial outlet Nomura suggest Macau casinos will be a little lighter than usual on VIP traffic in the years ahead. (Image: Vincent Yu/AP)

Nomura, a large Japanese financial services firm, said the reduction is due to their belief that VIP demand will continue to decline over the next two-plus years. Analysts explained in a note that “recent flattening of volume growth from junkets” is the reason for the cutback.

Nomura concluded that an overall nine percent GGR projection is “more sustainable.”

China’s Special Administrative Region where gambling is legal saw GGR soar 19.1 percent in 2017 to $33.2 billion. It was the enclave’s first annual gain since 2013.

The three years of declines were the result of President Xi Jinping directing law enforcement officials to crack down on VIP junket companies transporting mainland high rollers to the region. The crackdown has since eased, but junket groups are apparently slow to resume operations.

GGR year-to-date is up nearly 19 percent, with casinos winning $18.6 billion between January through June.

Trump Tariffs

With Xi’s administration placing stronger regulations and inspections on junkets, and the ultra-wealthy no longer so easily traveling to Macau on private charters and lent money to gamble with, casino resorts began switching their focus to more of the mass market.

It’s worked so far, as gaming revenues continue to soar despite fewer junkets in town. But Nomura says the recent trade tariff conflict between US President Donald Trump and China has the potential to unsettle both countries’ economies.

Trump’s $34 billion in tariffs on Chinese goods being imported to the US took effect last Friday. The president has threatened additional tariffs if China retaliates.

Analysts feel a trade war could lead to further contracting of VIP junkets. It could also keep many middleclass Chinese residents away from Macau, as they might see a reduction in pay.

Bloomberg Economics analysts Tom Orlik and Fielding Chen opined recently that the result of the tariffs could reduce GDP in China by as much as 0.5 percent.

Casino Stocks a ‘Buy’

Despite Nomura reducing its GGR outlook for Macau, the fact is that the enclave’s massive casino industry is still moving in the right direction.

Gaming revenue fell short of analyst forecasts in June when total win came in at $2.78 billion. But it was still a 12.5 percent increase on the same month in 2017, and marked Macau’s 23rd consecutive monthly gain.

Regardless, casino stocks invested in Macau retracted on the June GGR news. The six casino companies licensed in the enclave, Las Vegas Sands, Wynn, MGM, Melco, Galaxy Entertainment, and SJM Holdings, traded down roughly 10 percent to 17 percent last week.

Harry Curtis, an analyst with Instinet, which is a subsidiary of Nomura, says the pullback has presented a buying opportunity. Curtis says despite lowering VIP and overall GGR expectations, he still sees plenty of upside to several of the companies.

Curtis has a buy rating on Melco, MGM, and Wynn.