Macau’s second straight annual double-digit gaming revenue increase in 2018 – after three years of steep declines – might be short-lived according to Wall Street analysts.
Worries over the ongoing US trade war with China and a slow-down in the Chinese economy could keep any 2019 gaming revenue increase in the low single-digits.
For the year, Macau casinos collected $37.6 billion, a 14 percent increase over 2017, according to figures released on New Year’s Day by Macau’s Gaming Inspection & Coordination Bureau.
Even though December was the 29th straight month with a revenue increase, the market is still far below the apex of $45.1 billion reached in 2013.
Predictions of slower gaming revenue growth affects the stock prices of Las Vegas Sands, Wynn Resorts and MGM Resorts International – the U.S.-based casino operators with large holdings in the market.
Share prices in the companies were hammered in the last part of 2018. Las Vegas Sands shares ended the year down 22 percent, MGM was off 26 percent and Wynn was down 44 percent.
Stifel gaming analyst Steve Wieczynski, in a note to investors, said Las Vegas Sands, which has the largest market share in Macau over other U.S. operators, should benefit if mass market business remains strong.
“Although we cannot declare with full confidence that Las Vegas Sands shares have bottomed, we believe current levels present a compelling point of entry for patient long-term oriented investors,” Wieczynski said.
Las Vegas Sands is continuing to invest in Macau. In October, Sands President Rob Goldstein said the company would spend $2 billion over the next few years to expand and remodel its Macau properties, including transforming Sands Cotai Central into the Londoner Macau.
Wieczynski also said the U.S. and China continue to make progress on trade talks, with an American delegation set to travel to Beijing later this month for a face-to-face meeting. Las Vegas Sands, he said, benefits by any positive news.
“Although ongoing U.S.-China trade negotiations and an unsettled global geopolitical picture could work against the shares in the near term, we see nothing out there at this point capable of tempering our long-term enthusiasm on the name,” he said.
Visitation to Macau is up almost 30 percent, due largely to October’s opening of the $20 billion, sea-crossing bridge that links Macau to Hong Kong and mainland China’s Pearl River Delta. However, Union Gaming Group analyst Grant Govertsen said in a research note that the increase in tourism was not translating into casino business.
“We’re seeing a dynamic where tour groups are utilizing the bridge instead of ferry service to shuttle people between Zhuhai and Hong Kong by way of Macau,” Govertsen said. “We look for this dynamic to continue for the foreseeable future.”
Govertsen, who is based in Macau, said visitor spending in relation to gaming revenue is rising.
“(The) mass market continues to grow nicely and underpins the solid fundamentals we continue to see in Macau,” Govertsen said.
Both Wieczynski and Govertsen predicted Macau gaming revenues would increase between 2 percent and 6 percent in 2019, with both hinting steady mass market business will be the key for the year.
“Keep in mind (that) 2019 is largely expected to be an organic growth year, whereas 2018 benefited from the opening of MGM Cotai in February,” Wieczynski said.
Macquarie gaming analyst Chad Beynon said Macau’s still-to-be-determined relicensing process for casino operators, expected to start sometime in 2020, also overhangs the market.
“While Macau shares underperformed in 2018 on the back of fears of a VIP slowdown and concession uncertainty on the horizon, a strong fourth quarter result could be a sentiment changer,” Beynon said.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
