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China – Record monthly drop brings Macau’s growth to a close

By - 7 January 2015

Macau’s casinos recorded their worst year in 2014 with revenues falling 2.6 per cent to 351.5bn patacas ($44bn) for the year bringing a decade of explosive growth to an end.

Analysts’ worst fears were compounded in December with a record 30.4 per cent monthly drop in Gross gaming Revenues for the month, year-on-year, forcing the annual figure below analysts expectations.
Chinese President Xi Jinping’s much publicised efforts to catch ‘tigers and flies’ with his anti-corruption drive has put off VIP play. Analysts don’t expect to see much improvement in Macau’s growth until mid-2015, when new resorts open.

Standard Chartered’s Philip Tulk said: “The VIP heyday is over. The anti-corruption crackdown doesn’t look to be a short-term phenomenon. Unless the top end recovers, the new capacity isn’t going to drive gross gaming revenue significantly positively.”

There are currently seven new casino resort properties being built in Cotai, all of which are scheduled to open between 2015 and 2017.

Galaxy Entertainment will double the footprint of its Galaxy Macau resort by mid-2015 and will be Macau’s next major completed project. Melco Crown Entertainment has said the opening of its Studio City project is also on course for mid-2015. Las Vegas Sands will open its US$2.7bn Parisian casino resort, including a scaled version of the Eiffel Tower, in November 2015 with 3,000 hotel rooms. It has requested 450 gaming tables from the government. MGM Resorts plans to double its standing in Macau with the mid-2016 opening of its MGM Cotai project in 2016 with 1,600 hotel rooms, 2,500 slots, and up to 500 gaming tables. Wynn Resorts meanwhile says it will open the $4bn Wynn Palace on Cotai by Chinese New year 2016 with hopes of 500 tables and a 15,000-seat entertainment venue called Wynn Diamond Coliseum. SJM is building on Cotai for the first time with its Lisboa Palace opening in 2017 with 700 gaming tables and 1,000 slot machines as well as approximately 2,000 hotel rooms.

Falling revenues wiped away $91.6bn from the market value of Macau’s six casino stocks in 2014.
Sands China dropped by $HK208bn or 40 per cent of its value over the year, marking the biggest drop by any of the Macau casino stocks.

Melco Crown, who confirmed it would be delisting from the Hong Kong stock exchange, saw its share price fall 35 per cent or $HK61bn.

SJM Holdings experienced a 52 per cent loss in value representing a drop of $HK73bn. For some analysts, the success of Macau’s casinos in recent years has emphasised the downward trend in 2014.

CLSA’s Aaron Fischer said: “2010 and 2011 had exceptionally high growth rates; Macau will never see those growth rates again. We will see stabilisation in revenue in the second half of year, because the base becomes easier and also you’ve got new projects that will drive volume growth.”

Morgan Stanley’s Praveen Choudhary advised. “We see mass revenue, including slots, to remain flat in 2015, before growing 18 per cent in 2016, fuelled mainly by new hotel rooms and steady growth in spending per capita.”

Wells Fargo’s Cameron McKnight added: “With revenue trends still decelerating sequentially, it is now unlikely that the overall Macau market will grow in 2015.”

Wells Fargo is predicting a 20 per cent year-on-year decline in the first quarter with CLSA pitching it higher with a 29 per cent drop.

President Xi has advised that Macau should be looking away from casino revenues to diversify its economy. December accounted for the seventh straight month of decline.

Despite raising salaries by five per cent, SJM said it couldn’t see a ‘breakthrough improvement’ in 2015. Andrew Zarnett, Managing Director at Deutsche Bank Securities, believes though that Macau’s gaming revenue will reach US$100bn market by 2021, meaning the market’s worth could more than double in seven years.

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