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Howard Stutz

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Fitch analysts join others in cautioning on Macau

19 Nov 2014

By Howard Stutz
Now they are just piling on.

Analysts at Fitch Ratings Service Tuesday joined the chorus of cautionary investment advice toward the Macau gaming market, which has seen five straight monthly revenue declines and facing a sixth in November.

The bond advisement service predicted zero growth in Macau’s gaming revenue by the time 2014 is concluded, and an overall decline of 1 percent in 2015.

“Fitch’s forecast reflects the persistent weakness in the VIP business, which seems to be spilling over to the premium mass segment,” analyst Michael Paladino told investors.

He said the market might not recover until two resorts open in the second half of 2015 — the Galaxy Entertainment Group expansion of the Galaxy Macau and the Melco Crown Entertainment Limited opening of Macau Studio City.

“Our 2015 forecast may prove overly conservative if VIP bounces back to recent historical averages,” Paladino said.

Macau, which produced a record $45.2 billion in gaming revenue in 2013, has been a downward spiral since the summer.

A combination of factors, including a crackdown on corruption by the Chinese government, political demonstrations in Hong Kong, economic concerns, visa restrictions and the World Cup Soccer tournament all played a role in driving down Macau gaming revenue beginning in June.

October’s 23.2 percent decline was the largest single-month drop since American-owned casinos began operating in Macau in 2004. Through the first 10 months on 2014, Macau gaming revenue is up 2.3 percent.

Earlier this month, several investment houses warned investors to be cautious on the Macau market.

MGM Resorts International, Las Vegas Sands Corp. and Wynn Resorts, Limited all operate casinos in Macau and are adding to those holdings.

Las Vegas Sands is building the $2.7 billion Parisian development on Macau’s Cotai Strip. Wynn Resorts is building the $4 billion Wynn Palace on Cotai, while MGM Resorts is building the $2.9 billion MGM Cotai. All three projects are expected to open in 2016.

This week, other gaming analysts said they expect declines to continue in November.

Wells Fargo Securities gaming analyst Cameron McKnight predicted Monday revenue will be down another 18 percent to 21 percent during the month.

“We remain on the sidelines regarding the Macau market, as we believe China policy settings are negatively affecting growth,” McKnight said.

Sterne Agee gaming analyst David Bain told investors last week’s Macau Grand Prix auto race would hurt high-end gambling revenue during November, but could actually provide a small boost to gaming revenue overall. Bain also predicts an 18 percent to 21 percent decline.

Bain said there has been little change to the main issues facing Macau, including the anti-corruption drive and the challenged Mainland China economy, that would change his opinion on the market.

The government’s crackdown on corruption is hurting the junkets that bring high-end customers in the casinos. International law enforcement has long suspected the junkets are influenced by organized crime triads.

China President Xi Jinping is expected to visit Macau in December, which may also affect high-end visitation.

Paladino said Fitch analysts are cautious the crackdown could eventually effect the mass market business. A ban on smoking on Macau casino floors might also slice gaming revenue growth by 1 percent to 2 percent.

“Despite revisions, we do remain favorable on Macau, as we continue to hold that Macau and the greater China market remain underpenetrated,” Paladino said. “We expect gaming revenue growth will be driven by new supply and infrastructure development and that the Chinese economy will continue to grow, anchoring mass market demand.”

Shares of Wynn Resorts, traded on the Nasdaq, fell 7 cents or 0.04 percent to close at $182.56.

Las Vegas Sands shares increased 98 cents or 1.57 percent to close at $63.50. MGM shares closed at $22.39, down 3 cents or 0.13 percent. Both companies are traded on the New York Stock Exchange.

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