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China – Macau completes 12 consecutive months of decline

By - 1 June 2015

Macau’s casino sector has just celebrated an anniversary that few would have expected a few years ago and that no one wants now with 12 straight months of decline being confirmed by a 37.1 per cent fall in May’s revenue.

Gross gaming revenue came in at 20.35bn patacas, still a whopping US$2.55bn for May, according to Macau’s Gaming Inspection and Coordination Bureau.

The average fall for those 12 months has been 38.5 per cent. The year so far has seen over $24bn wiped out from the market value of the city’s six operators. The economy has been left vulnerable too with output falling to 24.5 per cent in the first quarter, worse than Greece and Ukraine.

Grant Govertsen, an analyst at Union Gaming Group, said: “We aren’t expecting further material downside from here. However, we acknowledge that trends could still be choppy for some number of months to come before we see any breakout to the upside.”

Mr. Govertson’s Union Gaming has published a report on the state of the market stating: “We believe that there exists a large pool of VIP customers who are patiently sitting on the sidelines waiting for the all-clear message to be sounded. Although we do not believe the anti-corruption drive will cease, we do believe that at some point, it will begin to wane, and those who feel the least at risk will return to Macau.”

The market is pitching its hope on a series of new openings over the coming years with the first Galaxy Macau phase 2 opening last week.

Ms Karen Tang, a Hong Kong-based analyst at Deutsche Bank AG “The market believes in ‘supply creates demand’ and consensus still forecasts a Macau recovery in 2016. If the first two openings fail to stimulate demand by year end, consensus would see another major cut.”

Mr. Govertsen added: “We continue to believe that the new Galaxy supply will be more of a share taker than a market grower, although it will take many weeks or months to determine the exact dynamics.”
The message from Macau’s Chief Executive Fernando Chui was ‘stay calm and peaceful to observe trends with wisdom.’

He urged locals to continue working toward diversifying Macau’s economy away from gambling. “Our objectives are clear; our direction is right,” he said.

The government is also moving towards a full ban on smoking in its casinos, a move confirmed this week by Secretary for Social Affairs and Culture, Alexis Tam Chong Weng, despite claims that this could worsen the trend. Macau currently allows smoking in VIP gaming rooms whilst mass market smokers must stop gambling and smoke in airport style, enclosed, smoking lounges.

Mr. Govertsen and colleague Felicity Chiang said: “While we would like to see a compromise reached that would allow for smoking lounges to remain within casinos, Beijing’s tough stance on smoking could provide the Macau government with enough political cover to carry out their plans for a full smoking ban. Note that GGR at the convenience-oriented Mocha Clubs, which have been smoke-free since last October, has declined 15 per cent and 12 per cent in 4Q14 and 1Q15, respectively. We would attribute these declines almost entirely to the elimination of smoking.”

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