GGRAsia – Market needs rethink on Macau 2016 earnings: DB

Market needs rethink on Macau 2016 earnings: DB

Sep 02, 2015 Newsdesk Latest News, Macau, Top of the deck

The investment community needs “to massively cut” its estimates on what level of recovery can be achieved in the Macau casino market in 2016, said a note on Tuesday from Deutsche Bank AG in Hong Kong.

Macau has experienced 15 consecutive months of revenue decline in casino gross gaming revenue (GGR) judged year-on-year, and for the first eight months of the year was tracking at an aggregate 36.5 percent fall from the equivalent period in 2014, according to Macau government data released on Monday.

“We spent two days in Macau last week, and learnt that August’s VIP [gambling] weakness was the result of China’s crackdown of underground banking. We think the Street needs to massively cut 2016 consensus GGR… towards our forecast level (DB 2016 GGR -7 percent),” said the note from Deutsche Bank research analyst Karen Tang.

She added that the bank’s estimates for the Macau operators’ 2016 earnings before interest, taxation, depreciation and amortisation were “18 percent below consensus”.

Ms Tang said in her note that “at least eight” Macau VIP gambling junket rooms had closed in August, but didn’t mention them by name.

The analyst further stated that the depreciation of China’s currency; the Chinese central government’s efforts to curb capital flight from the country; and the crash in China share markets; had all provided headwinds for Macau’s casino sector.

Referring to mass market players gambling for high stakes, she wrote: “For the premium mass market, marketing hosts told us that relaxation of transit visa [conditions] did bring back some low-tier premium mass guests, but the high-end ones are still missing as they lost money in the China stock market. Given this deteriorating player mix, average spend of a premium player is still falling.”

Recently Ms Tang had said in a note that a fresh crackdown at central government level and in Macau on so-called ‘underground banking’ – some of which enables money to move cross border from mainland China – could have a further negative effect on Macau’s beleaguered high-stakes gambling segment.

Deutsche Bank said additionally on Tuesday – referring to Macau pawnshops that facilitate cross border money movement for Chinese players via the China UnionPay Ltd electronic transfer system: “… ’til now, police only busted shops using rigged UnionPay devices that show transactions as occurring domestically inside China (rather than a cross-border transaction in Macau). But we worry that even shops using the legal UnionPay system may not want to swipe for large amounts any more.”

Morgan Stanley Asia Ltd analysts said in a note on Tuesday that “several things keep us from turning positive” regarding Macau.

Managing director Praveen Choudhary and his colleague Alex Poon wrote that those things included: “… risk of further clampdown (UnionPay and underground money transfer), continued shutdown of VIP rooms, limited room to cut costs further (even though the second quarter surprised to the upside), and inability of new Cotai casinos to drive demand.”