GGR stabilizing but soft recovery ahead: Fitch

Fitch’s Alex Bumazhny said that the firm is projecting approximately a 5 percent decline in Macau gaming revenue for 2016.

Year-to-date revenues are down 9.1 percent, but there are softer year-on-year comparisons ahead, plus the market should get a boost from the Wynn Palace and The Parisian openings, Bumazhny, Fitch’s senior director, corporate ratings – Gaming, Lodging & Leisure, said in a media briefing on Wednesday.

Bumazhny said that recent performance, and August in particular, had given the firm a degree of confidence that the market had reached solid footing, but that Macau remained susceptible to macroeconomic and regulatory conditions in mainland China, which must avoid a hard landing as it moves from an investment to a consumer-driven economy. He also pointed to the development of VIP markets outside of Macau, including Saipan, Vladivostok and Philippines, all of which could afford to pay higher junket commissions due to lower tax rates.

Mass market will be the main driver going forward, supported by increasing length of stay of visitors – 1.2 days year to date, compared with 1.1 in 2015, and 1.0 in the prior years. Fitch expects this trend to continue as the resorts expand their entertainment and amenity offerings, and transportation infrastructure projects begin to come online.

Despite signs of stabilization, Bumazhny said that they expect little near-term incremental benefit for concession holders from their multi-billion dollar expansions and expect single digit return on investment. Calculating an EBITDA increase of $100-$200 million per annum from new capacity, paybacks for the operators would range between 15 – 30 years. Estimating a compound growth rate of 6 percent (2 percent VIP and 10 percent mass), it will take over nine years for the market to return to its previous highs.

Wynn Macau and MGM China stand to benefit most from their new projects given their historically small footprints on the peninsula, as additional tables and hotel rooms will allow both operators to more aggressively target the mass market where they have been under-represented. Over the longer term, Sands China is best positioned since it has over a quarter of tables in the market and a third of hotel rooms.

Bumazhny was sanguine about the somewhat disappointing table allocations given to the two latest new projects, Wynn Palace (150) and The Parisian (150), pointing out that the openings were fairly close together and that, on aggregate, the market probably has excess tables.

Fitch remains positive on Macau in the longer term as they continue to believe that the Asia Pacific market is underpenetrated, particularly for the mass market. The pending infrastructure projects, such as the bridge to Hong Kong, a permanent Taipa ferry terminal, a rail link to Zhuhai and the light rail should help Macau to capture more of the 10 percent increase in China outbound travel in future.