Share price of leading casino operators in Macau remained almost unaffected despite Macau gambling revenues declining in double-digits in February. This was due to the fact that the rate of decline was slightly lower than what analysts had expected. Macau is a key operating region of leading casino operators like Wynn Resorts Ltd. WYNN, MGM Resorts International MGM, Melco Crown Entertainment Limited MPEL and Las Vegas Sands Corp. LVS.
Per Macau's Gaming Inspection and Coordination Bureau, gambling revenues for the month of Feb 2015 plunged approximately 49% to 19.54 billion patacas – marking the ninth month of consecutive decline and the fifth consecutive month of double digit decline. February decline was also higher than the Dec 2014 record decline of 30%.
Despite the Chinese New Year holidays that spanned from Feb 18 to Feb 24, gambling revenues witnessed a huge fall owing to the nationwide crackdown on corruption in China. This has compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. Consequently, this has lowered footfall at the local casinos. Meanwhile, a cooling Chinese economy, political unrest and a smoking ban on mass market gaming floors have compounded woes.
Misfortunes of Macau
A couple of analysts believe that the main problem in Macau is not the insufficient supply of gambling facilities. Instead, the lack of demand from VIP and rich gamblers is the core problem. Given the current restrictions on VIP gamblers, a Deutsche Bank analyst expects gambling revenues to decline 21% in 2015 compared to the previous expectation of a decline of 8.4%. Another analyst at Well Fargo stated that the significant fall despite the Lunar New Year festivities highlights meaningful uncertainty over Macau’s future.
We believe that the worst is not over yet with China expected to launch another major crackdown to restrict illegal money transfers. The crackdown comes at a time when the casino operators are already feeling the heat of China’s anti-corruption campaign. This is expected to further reduce footfall and hit Macau casino revenues.
On the other hand, the Macau government is expected to submit a bill to ban smoking in the VIP rooms after implementing the same for mass gaming floors in Oct 2014. This would compound woes as the smoking ban, if implemented, would further hurt revenues. Moreover, with the Macau government intending to take actions to curb the number of tourists in the region, the prospects of the gambling companies appear to be bleak.
However, there are a few resort openings in the pipeline by operators such as Wynn Resorts, MGM Resorts and Las Vegas Sands. We need to wait and see whether it will be enough to offset the loss of VIP visitors.
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