Turbulent headwinds

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The largest junket in Macau, Suncity, started to operate last week in the Philippines and analysts fear that it may end up hurting the Special Administrative Region’s economy, as the company may decide to take VIP players there. This concern was expressed in a Credit Suisse research note written by analysts Kenneth Fong and Isis Wong.
“Suncity, Macau biggest junket, just opened VIP rooms in Philippines last week; near term, they may shift further business to this new outlet, further hurting Macau demand, in our view”, the researchers explained.
While Credit Suisse predicts gaming revenue to decrease 36 to 37 per cent year-on-year in May – which would mean that revenue would range from MOP20.4 to 20.6 billion – there is also the concern over the approval of the full smoking ban in casinos. This is seen as another factor driving VIP players away from Macau.
“If the new rules are implemented with no smoking lounges allowed in the casinos, the players may need to physically walk all the way out of the property to smoke. This decrease in time spent at the table is likely to impact gaming revenue. On the VIP side, we believe that this rule may prompt junkets to take players overseas where there is a more accommodative operating environment”.
Credit Suisse recommends investors exercise caution about the Macau gaming industry mainly because of “very unsupportive policy headwinds”.
These include “uncertainty over gaming table allocation for new casinos, low flexibility on labour reduction despite sharply falling revenue due to the pressure from labour unions, full smoking ban implementation and various discussions on visitation caps/limitation”.
The same report also expects the People’s Bank of China’s cutting of both benchmark deposit and lending rates to have very limited impact.
This is explained again by spillover impact of slower Mainland visitation from Hong Kong and policy and poor China macros driving weaker demand.
During the first four months of the year, gaming revenues decreased 37.1 per cent year-on-year from MOP133.5 billion to MOP83.9 billion.