Macau Casinos Facing Two Straight Months Of Falling Revenues

For the first time in its history the Chinese gambling hub of Macau is facing the prospects of two straight months of falling casino revenues. In June, Macau’s 35 casinos reported a 3.7% fall in revenues to $3.4 billion, representing the first downturn in business since 2009, and by all accounts July’s results are also now anticipated to come in below expectations.
June’s downturn in fortunes was blamed on the 2014 FIFA World Cup football, but analysts had expected a rebound in business post mid-July after the showcase football tournament concluded. Unfortunately for Macau, however, July was a flat month, thus compelling investors to downgrade their expectations. Wells Fargo, for instance, has lowered its forecast for the month from flat to a 3% to 4% year-on-year decline, while pointing to a 17% drop in VIP revenues, but a 27% rise in mass tables.
Consequently, the market is now bracing itself for a new influx of downward predictions, and as Wells Fargo stated in a client note, yesterday:
“Given weaker June and July growth and Las Vegas Sands’ results, we expect downward revisions to Q2/Q3 Street Macau estimates and there could still be near-term downside in valuations for the group, based on our analysis of 2012, our ‘scorched earth’ valuation, and limited positive catalysts.”
Although Macau’s casino revenues were up by 13% in the first quarter, its second quarter revenues were down by 11% compared to Q1, representing the first sequential quarterly drop since Q2 2012. For the whole of 2014, Macau’s casino gambling revenues are now expected to be around 8%, a far cry from the 19% growth noted for 2013, which in turn will likely impact casino share prices, especially if July revenues shows a fall, as most forecasts are now suggesting.
A number of factors have been cited for Macau’s recent downwards trend, including China’s slowing economy, a liquidity squeezes on smaller junket promoters, deceleration of VIP revenues, and increasing labour costs. Also contributing to the lower results has been China’s clampdown on corruption and money laundering, leading to greater scrutiny by casinos of their VIP customers.