GGRAsia – Macau margins, competition, dampen PBoC rate cut: CS

Macau margins, competition, dampen PBoC rate cut: CS

Nov 28, 2014 Newsdesk Latest News, Macau, Top of the deck

The recent interest rate cut announced by China’s central lender – the People’s Bank of China – has “boosted the market’s risk appetite and gave hope for swifter VIP pick up,” said a note on Thursday from Credit Suisse AG in Hong Kong, referring to Macau’s high roller casino revenues.

Macau’s gross gaming revenue (GGR) has recorded year-on-year declines for every month from June to September this year according to the local regulator, the Gaming Inspection and Coordination Bureau, mainly because of the decline in VIP business. Unofficial numbers quoted by analysts indicate the rate of year-on-year VIP decline quickened in October and could be heading for an even larger drop in November.

On November 21 China’s central bank said it had cut its benchmark one-year loan rate by 0.4 percentage point to 5.6 percent, making it cheaper for businesses to borrow in order to hire or expand. It was the first interest rate cut since July 2012.

The day before that news, Citigroup analysts in Hong Kong led by Anil Daswani had sounded an upbeat note on Macau gaming in relation to central government policy.

It followed an announcement that the border crossing between Macau and mainland China’s Hengqin Island would start operating 24 hours a day on December 18, just ahead of President Xi Jinping’s expected visit to Macau to mark the 15th anniversary of the city’s handover from Portuguese administration.

“This is his gift to the Special Administrative Region,” wrote Citi’s Mr Daswani and his team.

The policy initiative followed months of negative headlines linked to the anti-corruption campaign on the mainland, which is said to have been partly responsible for keeping high rollers away from Macau.

But Kenneth Fong and Isis Wong of Credit Suisse on Thursday said it was too soon to start talking about a turnaround in Macau’s fortunes either this year or early next year.

They wrote: “Looking into December, we expect the soft revenue trend to persist, especially ahead of President Xi’s visit for the 15th anniversary of Macau handover…Recall that in December 2009, GGR dropped 7 percent month-on-month when former President Hu Jintao visited Macau for the 10th anniversary of Macau SAR.”

They added – referring to the 23 percent decline in GGR seen in October and to the redesignation of some casino zones linked to the mass floor smoking ban introduced on October 6: “November headline GGR is tracking to another 20 percent decline while mass revenue is also falling another 5 percent to 7 percent (adjusted for premium mass reclassification) or 10 percent to 12 percent year-on-year on a reported basis, based on our estimate.”

The Credit Suisse team said that while the bank remained positive about the long-term outlook, remaining headwinds included transit visa restrictions, the mainland’s anti-corruption campaign and the mass floor smoking ban.

They added: “The market has not fully priced in the adverse margin impact from the sharp revenue decline (third quarter -7 percent year-on-year versus an estimated fourth quarter -23 percent year-on-year), unfavourable mix shift (towards low-margin VIP) and keener competition (we understand that more aggressive junket incentive plans have been proposed for 2015).”