Macau VIP Play Crashes 20 Percent in July, Gaming Analyst Concerns Increase Regarding Enclave Outlook
Posted on: August 1, 2019, 09:08h.
Last updated on: August 1, 2019, 11:54h.
Editor’s note: The below section on the trade war was published prior to President Donald Trump announcing new tariffs on China this afternoon.
Macau VIP play dropped more than 20 percent last month, and gaming industry analysts are becoming increasingly concerned regarding the enclave’s future amid a weakening Chinese economy and ongoing trade tensions with the United States.
Macau’s Gaming Inspection and Coordination Bureau (DICJ) reveals that gross gaming revenue (GGR) totaled MOP24.45 billion ($3.03 billion) in June, which is a 3.5 percent decline compared to the same month in 2018. That pushes GGR year to date down 0.9 percent to $21.59 billion.
Mass market play helped offset some of the VIP losses, but the month still badly missed analyst expectations. Brokerages Sanford C. Bernstein and Nomura respectively forecasted GGR growth of between 8 and 11 percent and around 5 percent.
Reason to Panic?
July kicked off strong for Macau, with casino floors busy and five-star resort hotel rooms occupied. Things quickly cooled off, and there are several potential reasons why.
First, the ongoing trade tensions between China and the US continue to cast uncertainty across the Special Administrative Region (SAR). Presidents Donald Trump and Xi Jinping have called a temporary truce to not further raise tariffs, but the elevated fees on imported and exported goods have slowed economic growth in the world’s largest country in terms of gross domestic product.
US and Chinese negotiators met this week in Shanghai. China’s Commerce Ministry said in a statement, “Both sides … had a candid, highly effective, constructive and deep exchange on major trade and economic issues of mutual interest.”
Another concern jeopardizing Macau’s gaming industry is the sentiment among VIP players regarding the enclave’s junket operators.
Xi directed a crackdown of such travel organizers several years ago that greatly impacted GGRs. In mid-July, Alvin Chau, the CEO of junket power player SunCity Group, apologized to the mainland government for running online gambling operations from the Philippines and Cambodia that allegedly targeted Chinese citizens.
Bernstein analysts said VIP demand fell due to “worries over heightened scrutiny overall after the Suncity incident.”
Downplaying Less Play
Other gaming observers say there’s no reason to panic.
VIP demand deteriorated sharply toward the latter half of July with no obvious reason, in turn suggesting it could be a short-term blip amid heightened media attention on Hong Kong, given escalated protests, and junkets,” JPMorgan analyst DS Kim said. The analyst admitted July was disappointing, but not “thesis-changing” in the long run.
Nomura doesn’t believe the SunCity scandal kept VIPs away. Instead, the brokerage opined, “We believe that many premium customers took the last 10 days to spend time with families. They always return though, so we view the slowdown as temporary.”
July ended two consecutive months of GGR growth. August will be a tough comparable, as gaming revenue surged 17 percent in 2018. Nomura is calling for a 0.5 percent dip in casino win next month.
Despite the Macau miss, US casinos stocks invested in the enclave are holding up fine – likely due to a strong day on Wall Street. Las Vegas Sands, MGM Resorts, and Wynn Resorts are all up as of noon today.