A visitor sits in front of a gaming machine at Gaming Expo Asia in Macau in this May 22, 2012 file photograph.BOBBY YIP/Reuters
Macau's casino industry is headed for its longest losing streak, facing months more of falling revenues as continued crackdowns against graft by the Chinese government prompt gamblers to tone down on extravagance.
A two-year campaign on corruption has discouraged China's high-rollers from ostentatious displays of wealth in Macau, the only place in the country where casinos are legal. The industry could be further affected by Chinese President Xi Jinping's expected visit to Macau next month, according to Union Gaming Research analyst Grant Govertsen.
"Since the beginning of October, the market has rallied with a view that October is the worst gross gaming revenue decline, and that most of the bad news is already in the price," Praveen K Choudhary, an analyst at Morgan Stanley, wrote in a note Wednesday. "We disagree."
Growth in the mass market sector could drop to zero or worse from now to March 2015, according to Mr. Choudhary who predicts the VIP business will only start improving in as early as three months. Historically, stock prices bottomed at the same time as casino revenue troughed, he said.
Shares of Melco Crown Entertainment Ltd. fell 4.3 per cent to close at $64.8 (HK) in Hong Kong trading, leading the second day of declines among Macau operators after the city reported its worst slump in monthly gaming revenue on record.
Sands China Ltd. was down 3.3 per cent, Wynn Macau Ltd. dropped 3.1 per cent, while Galaxy Entertainment Group Ltd. lost 3 percent. SJM Holdings Ltd. and MGM China Holdings declined by 2.9 percent and 2 percent respectively.
Record Decline
Wynn Macau and SJM were downgraded to underperform from neutral at Credit Suisse Group AG today, and the bank also cut Sands China to neutral from outperform.
Total casino revenue in the world's biggest gambling hub fell 23.2 per cent to 28-billion patacas ($3.5 billion) in October, dropping for the fifth straight month, according to Macau's Gaming Inspection and Coordination Bureau yesterday.
The previous record decline was in January 2009, when casino revenue fell 17.1 per cent in the aftermath of a global credit crisis. It slumped seven months straight from December 2008 to June 2009, the longest losing streak for the city.
Macau's casino gambling revenue is expected to keep declining until mid-2015, when casino operators start opening new properties, Barclays Plc analyst Phoebe Tse wrote in a note yesterday. Full-year revenue should slump by 1 percent, she said, making it the industry's first annual decline in the city.
The former Portuguese enclave recorded the slowest annual growth in casino revenue in 2009 with a 9.7 percent gain and it hasn't seen a yearly decline since records started in 2002.
Men in Foxholes
Parent companies of the Macau casinos fell Wednesday in New York trading, with Las Vegas Sands Corp. dropping 2.6 per cent at 10:15 a.m., while MGM Resorts International declined 4 per cent and Wynn Resorts Ltd. lost 3.8 per cent.
Wynn Resorts, founded by billionaire Steve Wynn, reported Oct. 28 that revenue climbed 9 percent at its two casinos on the Las Vegas strip, which helped offset a 5.6-per-cent drop in its Macau properties where the company gets more than two-thirds of its sales.
"The policy of the central government in being very, very aggressive about what appeared to be a misconduct and corruption of the government has put a lot of the wealthy businessmen in the foxholes," Mr. Wynn said in a teleconference after the results, according to a Bloomberg transcript.
"I don't know whether it's a squall or we're in the rainy season or how long it will last, but we're still very, very bullish on Macau," the 72-year-old executive said.
Government finances won't be hurt by falling casino tax revenue even with continued declines next year, said Macau's Secretary for Economy and Finance Francis Tam in a statement on the Information Bureau's website.
The industry's current slowdown "is in line with the authorities' expectations," Tam said, adding that he believes the trend "will be maintained for a longer period of time."