Gaming revenue in Macau fell 11.3% in January – not as steep as some gaming analysts predicted – but the prolonged impact of the coronavirus outbreak in China will continue to depress the world’s largest gaming market.
Analysts from Fitch Ratings Service said this week lengthy travel bans implemented by the Chinese government in wake of the viral outbreak could cost U.S. based casino companies operating in Macau up to $2 billion in lost cash flow.
Macau’s Gaming Inspection and Coordination Bureau said Saturday the market’s casinos collected $2.76 billion from gamblers during the month, a depressed figure given the virus’ effect just as country was celebrating the Chinese New Year Holiday, often considered the busiest time in the gaming enclave. Last week, Las Vegas Sands executives said visitation to the company’s properties was down 80% during the holiday.
Transport links with mainland China have been curtailed with dozens of flights and ferry services cancelled. Macau halted public Lunar New Year celebrations but extended the holiday break to the end of the week, keeping banks and businesses closed. Thousands of Chinese citizens have been inflected with the virus, but as of last week, just seven confirmed cases were found in Macau.
Before the coronavirus spread, analysts were hopeful Macau’s gaming market would recover during January after casino revenues declined 3.4% in 2019, the special administrative region’s first annual revenue drop since 2016.
In a research note to the investment community, Fitch gaming analyst Alex Bumazhny, said the gaming revenue decline was likely to be significantly greater than in 2009, when the Asian swine flu epidemic saw gaming revenue fall 17% in the first quarter and 16% drop in the second quarter.
He said authorities were quicker to implement comprehensive travel restrictions this year, which has led to a decline of 78.3% in visitation over the first seven days of the holiday.
Bumazhny said the companies most impacted by the depressed numbers would be Nevada-based operators Las Vegas Sands, Wynn Resorts and MGM Resorts International, and Hong Kong-based Melco Resorts and Entertainment, whose shares are listed on the Nasdaq.
For the 12 months that ended in September, Bumazhny said Las Vegas Sands collected 64% of its revenues from Macau, 72% for Wynn, 22% for MGM, and 88% for Melco.
“Assuming first-quarter and second-quarter 2020 revenue from Macau declines by 50% and 25% respectively, the combined hit to the four operators’ cash flow would be $2 billion,” Bumazhny wrote, adding the figure “considers the operators’ expense structure and further assumes 50% of the revenue decline flows down to (cash flow).”
He also said the company’s “solid credit profiles … should enable them to withstand this pressure.” Bumazhny said the companies don’t have any major debt maturities coming due this year.
Many analysts have been forecasting gaming revenue declines of up to 30% as long as travel restrictions are in place.
Macquarie Securities gaming analyst Edward Engel, who is based in Hong Kong, said last week the continued gaming revenue declines could make to difficult for Las Vegas Sands to stay profitable as long as the travel ban is in place. He said the company is Macau’s largest employer and has operating expenses of $6 million per day.
During Wednesday’s fourth quarter earnings call, Las Vegas Sands Chairman and CEO Sheldon Adelson called the situation in Macau “unique and serious.” President Rob Goldstein said all employees in the company’s eight properties, including dealers and casino floor personnel, are wearing protective face masks. All customers are being screened for signs of the virus as they enter the building.
Goldstein has hard pressed to say when Macau would see signs recovery, but he had no doubt the market would stage a comeback.
“When they do resolve this, Macau will be very busy. (Customers) will come back in force,” Goldstein said. “We just don’t know when that will happen. This storm will pass. We don’t know when. But we’ll be first in line as an investor in this market.”
In trading Friday, Las Vegas Sands shares fell 89 cents or 1.34% on New York Stock Exchange to close at $65.31. Wynn Resorts was down 46 cents or 0.36% to close at $126.16 on the Nasdaq. MGM Resorts was down 24 cents or 0.77% to close at $31.06 on the New York Stock Exchange. Melco Resorts was down 48 cents or 2.32% to close at $20.17 on the Nasdaq.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
