Optimism for Macau gaming revenue in 2017: analysts

Stronger than expected gaming revenue in the fourth quarter of 2016, along with improvements in VIP and mass play could see Macau achieving gaming revenue growth of 6 percent in 2017, say analysts from Morningstar.

“We have revised our near-term Macau gross gaming revenue growth forecast, based on our industry checks that point to improvement in both VIP and mass play,” Chelsea Tam, an equity analyst at Morningstar said in a note on Monday.

“Our conversations with industry participants in the VIP segment indicate that a cyclical VIP recovery is in the cards,” she noted, adding that new casino openings, lower hotel prices, and a near-term improvement in economic data and higher property prices could be some of the factors underpinning the recovery.

Junket consolidation also seems to have quietened down, says Tam, who refers to conversations she has had with junket operators.

Mass revenue revenue expectations have also been revised by the analyst, rising 200 basis points to 9 percent growth in 2017.

Tam says the change in expectations stems from 1) increased frequency of visits by premium mass customers, 2) an improving mix in visitors (with higher-spending overnight visitors), and 3) stronger-than-expected recovery in the fourth quarter of 2016.

“While stabilization in GGR (especially in Mass) had been a theme we have been preaching since late 2015, late spring 2016 finally brought growth in Mass and more recently VIP has been showing positive signs with growth evident since September,” added analysts from Bernstein in a note on Wednesday. 

However, concerns of capital controls measures, as well as the expected introduction of a smoking ban in VIP areas could dampen some of the optimism for the VIP and mass market segment in 2017 and 2018, says Tam.

Bernstein says it estimates mass GGR growth of 12 percent, VIP growth of 3 percent and EBITDA growth of 14 percent. “The long-term growth prospects for the industry remain attractive (principally in Mass) – we continue to forecast a long-term GGR CAGR of 8 percent and EBITDA CAGR of over 12 percent,” the brokerage added.