Macau gaming to slow to 8pct growth in 2013: Fitch

But casino industry could still be worth US$41 billion annually by next December

Fitch Ratings, a credit rating agency, is predicting eight percent growth in Macau’s gaming revenues for 2013. That would mean significant slowing from the 12 percent to 13 percent expansion expected this year once the returns for the whole of December are known.
The agency adds however that its 2013 assessment still represents “meaningful growth” in the context of 2011’s year-on-year leap of 42.2 percent.
“Continued infrastructure development – supporting the mass-market segment and a further ramp-up of LVS’s Cotai Central – should propel revenue growth of roughly eight percent in 2013, which implies low-single-digit VIP revenue growth and roughly 20 percent mass market revenue growth,” states the report.
Assuming that the Macau market grows by 13 percent this year to 302 billion patacas (US$37.8 billion) as suggested by a number of other analysts, then Fitch’s forward assessment would nonetheless mean the annual market will be worth 326.16 billion patacas – equal to US$40.9 billion – by the end of December 2013.
The agency’s latest report on the sector ‘2013 Outlook: Asia-Pacific Gaming’ adds that despite the year-on-year contraction seen in visitor numbers from some key markets such as Hong Kong this year, 2013 should see “a rise from the record 28 million visitors in 2011”.
The study, produced by analysts based in Australia, the United States and Singapore cites a raft of infrastructure projects due to be completed between now and 2017 as aids to the development in particular of the mass market.
They include the Guangzhou-Zhuhai high-speed railway with its feeder spur to the Gongbei border crossing point, that mainland officials said recently would open “this month” and that will reduce the journey time from Guangzhou to the border to 50 minutes.
It also includes the new Taipa ferry terminal which could start trial operations as early as the middle of next year and be fully open by mid-2014, according to Susana Wong Soi Man, director of the Maritime Administration, in comments made during her policy address to the Legislative Assembly on December 4.

Smoking woes

“The mass market should continue to grow faster than the VIP segment over the next few years, supported by numerous infrastructure projects, as well as the potential for further development of Hengqin. This dynamic should benefit Sands China (Las Vegas Sands Corp.), as its business model is weighted more toward the mass market,” says Fitch.
But the agency cautions that the partial smoking ban on casino floors due to be implemented from January 1 will have an impact on revenue expansion.
“A partial smoking ban in Macau is scheduled to be implemented, which will constrain revenue growth – and there has also been discussion of revising the smoking regulations to become a full ban.”
It adds that despite the recent economic factors in China that have slowed the VIP baccarat market – a segment usually accounting for 70 percent of Macau’s annual gaming revenue – that “credit conditions have stabilised over the second half of 2012”.
It states: “Longer term, Fitch expects Macau’s gaming revenue to grow at a similar rate to China’s GDP growth – or higher. This is supported mainly by Macau’s low penetration among Chinese nationals eligible to obtain visas to Macau, and growth in transportation and immigration-processing infrastructure in and around Macau.”
Fitch suggests that the Macau government’s decision to limit market capacity via a continued cap on the number of live gaming tables allowed in casinos – rather than a limit on the number of visitors allowed into Macau – “bodes well for the profitability of existing casino operators”.

Credit view

The agency gives a “stable” outlook for the credit profile of casinos in Macau, Australia, Singapore and Malaysia.
“The established casinos have completed most of their expansionary capex, and the casino gaming market overall is projected to expand. Market shares and profitability of existing operators will potentially be impacted by the new casinos to come on line, but not to extent that credit profiles are materially impaired,” says the report.
Fitch says the “primary risk” to Macau-focused casino operators is that South Korea, Japan, and Taiwan could provide “credible competition” if they legalise gambling, at a time when Macau projects are still being constructed and are being fed into the market gradually thanks to the table cap.
When extensions to existing properties and new build schemes are taken into account, Cotai is due to have eight new centres of gaming capacity between now and 2017.
“But Fitch believes the broader Southeast Asia market is deep enough to absorb some additional market capacity without a significant negative impact on Macau. That said, new market development is the most important dynamic to monitor in light of the amount of supply that could enter the Macau market between 2015-2017,” concludes the report.