Macau Casino Revenues Expected to Continue to Decline
Gaming in Macau is declining, with industry experts warning things are likely to get worse in the coming years. The main reason for the decline is believed to be the smaller number of tourists traveling from mainland China to Macau, especially highly-coveted and big-spending VIP ones.
According to GGRAsia, Macau is currently marketing itself as a prime tourist destination in Asia via the Macau Government Tourist Office as a "world centre of tourism and leisure." Despite this promotion, Macau casinos have experienced 10 straight months of declining gaming revenue, following five straight years of monthly increases, along with more than a decade of steady growth. Additionally, industry experts predict that gaming revenue in May 2015 will decline anywhere from 34 to 39 percent when compared to May 2014.
While UBS Securities Asia Ltd. analysts Anthony Wong and Angus Chan are estimating the May decline to be below this estimate, they forecast heavy declines for the rest of the second quarter of the year, stating in a note, "Both VIP/mass [revenues are likely] sequentially weakening in the second quarter versus the first quarter. We estimate the mass revenue in May to drop 20 to 25 percent year-on-year, and the VIP revenue to drop 42 to 47 percent year-on-year."
Karen Tang, a Deutsche Bank AG analyst, is one of many people warning that the industry's reliance on customers from mainland China has negatively impacted both the number of tourists and overall revenue by Macau-based casinos.
"Not only is spend per visitor falling, Macau's visitor arrivals had also fallen four percent year-on-year in the first quarter of 2015, [the] worst decline since [mainland] visa restrictions in 2008-09," Tang wrote in a note on Tuesday. "Disappointingly, the weakness was most pronounced for overnight visitors."
While some industry experts believe that the decline in tourists from mainland China is due to the political crackdown occurring in the country, many others believe it is more than that. Tang suggested that, "Player mix [has] deteriorated as high-end premium mass now prefer to spend holidays abroad."
The decline in big spenders visiting Macau casinos has not only caused a recent overall decline in Macau gaming, but also has reduced the casino's efficiency with table limits heavily declining. Tang noted, "We learnt that average table limits on Macau’s mass gaming floors had fallen circa 30 percent since the peak in the third quarter of 2014."
Tang adds that this trend is also likely to continue, stating, "We forecast that Macau's mass table yield will fall another 30 percent by 2017 as supply outstrips demand."
A significant turnaround for Macau-casinos is not expected without changes in policies and mainland China politics. Competition is only increasing in other regions in Asia, with new casinos recently established and more planned in the Philippines, Singapore, Cambodia, and Australia. Additionally, more demand may also shift to Japan, if the country's Parliament passes a casino bill to legalize casinos in the country in time for the 2020 Summer Olympic Games in Tokyo.
Credit Suisse AG analysts Kenneth Fong and Isis Wong elaborated on this point, stating in a note on Tuesday, "Suncity, Macau's biggest junket, just opened VIP rooms in [the] Philippines last week. Near term, they may shift further business to this new outlet, further hurting Macau demand, in our view." GGRAsia adds that this is in reference to recent reports that Suncity Group Ltd. launched a VIP gambling operation at City of Dreams Manila.
Another reason a declining trend is expected to continue is the high 39-percent gross revenue tax levied on casinos in Macau. Other regions are applying much lower tax rates to their land-based casinos, allowing them to create more attractive offers to their potential customer base, especially to VIP players.
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