Casino Stocks & Sales In Macau Set To Plummet After Market Slowdown
Big casino operators and gambling service providers in Macau have more reasons to worry this year, as trends show a continuation of market slowdown for casino services. 2018 saw the Macau gambling industry taking big hits, as consumption of casino services fell steeply.
Switzerland-based investment banking company UBS Group AG recently estimated a further slowdown in sales and stock prices, with 2019 predicted to be far worse for casino operators in Macau. This prediction comes following analysis of gambling spends & revenues in two of China’s biggest operators – Wynn Resorts (WYNN) and MGM Resorts International (MGM).
For their second-quarter earnings, Wynn Resorts saw a gross gaming revenue (GGR) of $1.61 billion, with each share bringing in $1.53 and MGM Resorts International earned revenues worth $2.86 billion, with per-share earning only 26 cents. Both the companies missed their top and bottom line targets and things have remained bleak in the current quarter too.
Experts from UBS had earlier projected a rise in gambling revenues by 5% for 2019, however, given the recent shape of events, projected revenue figures may actually be 1% lower than the revenues earned in 2018. With regards to the 2020 prediction, UBS analysts believe revenues may finally see a rise of 4%, again just half the previous prediction of 8% growth in GGR for 2020.
The markets responsible for this poor performance are the VIP segment and the mass market category. While mass market spending did experience a 5% increase than 2017, the revenues still fall short of the estimated 7% increase in GGR. VIP segment spending on the other hand, has experienced a fall in 8% from 2017 and UBS analysts believe that demand for premium casino services will see a further dip come 2019.
The reason for these projections lies in the profile of customers frequenting the Macau gambling industry. Analysis by UBS researchers pointed to a change in the demographics of visitors to Macau casinos. More number of foreign tourists are visiting Macau for a holiday, with little to no intention to gamble and less number of gamblers are making the trip to Macau, choosing to visit the more commercially successful regions like Las Vegas instead.
This change in customer profile has hit the Macau casino industry hard. Add to this the growing amortization and depreciation rates of the Chinese casino industry (predicted to reach 13% in 2019) and the future looks bleak for operators.
Currently, UBS has given a Neutral rating for both Wynn Resorts and MGM Resorts International stocks. While the former will see stock price fall massively from $73 to $57, the latter will experience a smaller fall from $32 to $30.