Supplier News

China –Macau’s economy facing falling yuan

By Phil - 21 August 2015

Following corruption crackdowns, smoking bans, a struggling economy and visa restrictions, the Macau casino sector is now being threatened by a weaker yuan with one analyst predicting that the unfavourable forex rate could shave another 10 per cent of Macau’s GGR next year.

The first half of 2015 has seen Macau’s casino sector almost half in value with GGR falling by 40 per cent to around the US$3bn mark from just over $5bn last year. Analysts at Daiwa Capital Markets have forecast that the weaker yuan could have an eight to ten per cent downward impact on mass market GGR next year and a 20 per cent effect on the VIP sector.

The level of the first half downturn was confirmed with the release of second quarter and first half results at SJM Holdings and Galaxy Entertainment, who saw revenues plunge by 40.3 per cent and 34 per cent respectively.

Galaxy Entertainment Chief Financial Officer Robert Drake said: “It has been one thing after another. In the short term we are still assessing the overall impact of the yuan devaluation on the market and what it means for Macau.”

Aaron Fischer, CLSA Regional Head of Consumer & Gaming Research, said: “We believe that most gamblers believe they are going to be lucky and win when they sit down to play. Therefore, a small change in currency is unlikely to materially impact their gaming decision-making process. It is too late to downgrade the sector. The earnings downgrade cycle is over.”

It could be that smaller junket operators will be hit harder than the casino operators. Wayne Lio of junket operator Tak Chun said: “It will probably impact the smaller junkets more. If they don’t have cash flow they won’t be able to wait for their players to pay them back.”

Meanwhile a new study carried out by the University of Macau has identified a growing negative attitude towards the casino sector from local communities.

Locals who worked in the casino sector and those that didn’t ranked the casino sector as the lowest point of employment in the tourism sector. Their main reasons though due to traffic congestion and poor public transportation.

Glenn McCartney, Assistant Professor in Gaming & Hospitality Management, University of Macau and co-author of the report, said: “In any sustainable, competitive and leading tourism destination development, resident support and consensus is at its core. We discuss these factors, and within our implications and way forward, issues to most urgently address and communicate to local Macau residents.”