November Rain: Nomura Instinet Says This Will be Worst Month of 2019 For Macau Operators

Posted on: November 26, 2019, 12:24h. 

Last updated on: November 26, 2019, 12:58h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Analysts are piling on when it comes to gloomy fourth-quarter forecasts for Macau gross gaming revenue (GGR). Today, Nomura Instinet said it expects November will be the worst month of 2019 for turnover in the Asia gambling hub.

In October, Macau’s six concessionaires posted combined GGR of $3.28 billion, a 3.2 percent year-over-year decline. According to Nomura estimates, things aren’t shaping up to be much better in this month on the peninsula.

We estimate GGR for the month should settle around MOP22.5-23bn ($2.79 billion to $2.85 billion),” said Nomura Instinet analyst Harry Curtis in a note out today. “The midpoint of the estimated range implies a 9% YoY decline in November, or ~580bp of sequential deceleration, given a tougher one-year growth com.”

If the low end of Curtis’ estimate comes to pass, this month will be the worst month for Macau GGR since the $2.78 billion posted in June 2018.

Latest Dismal Forecast

Instinet is the latest research firm to make bearish comments about the near-term revenue and profit outlook for Macau. Recently, Bernstein analysts trimmed earnings estimates for the six operators on the peninsula, citing sluggishness among VIPs.

That research firm said fourth-quarter Macau GGR could slide seven percent, worse than its prior forecast of a five percent drop, due to a 17 percent plunge in high-end player revenue. For November, Bernstein expects a GGR decline of 10 percent to 13 percent, while Instinet’s outlook for the current month is less bad, calling for a nine percent decrease.

Like Bernstein, Curtis and his team at Instinet cite slack VIP turnover as the culprit behind the expected November malaise in the Special Administrative Region (SAR).

VIP numbers are “tracking approximately 30 percent to 32 percent lower versus the same period last year,” according to Instinet.

Mass Market Strong, But Not A Savior

Recent data indicates visits to Macau remain solid, but that higher-tier gamblers simply aren’t spending as much as in years past. Mass and premium mass players are picking up some of the slack as the segments remain robust, but it’s still not enough to offset the void created by suddenly reluctant VIPs.

“We estimate that average daily mass revenues were approximately 5 percent to 7 percent higher year-on-year,” according to Nomura.

Those figures are almost inline with the nine percent fourth-quarter uptick in mass market play on Macau that Bernstein is forecasting.

Among the operators that stand to benefit from increased non-VIP revenue, Las Vegas Sands (NYSE:LVS) is one that stands out.

The operator of five Macau casinos is significantly less levered to retrenchment among high-end gamblers, and more exposed to the mass and premium mass players, which is one of the reasons so many analysts have favored the stock among those with Asia-Pacific exposure.

Although LVS’ third-quarter Macau turnover off $2.11 billion slightly missed the consensus forecast of $2.13 billion, the company highlighted its ability to generate revenue among lower tier players and non-gaming sources.