Casino shares surge after Macau ends more than 2 year revenue slump

The push towards more reliance on the mass market seems to have worked, according to analysts, with monthly gaming revenue for August rising 1.1 per cent to 18.84 billion patacas (US$2.36 billion), compared to the same month in 2015. The contraction in the second quarter was “mainly due to slower declines in service exports and investment, as well as a lower base of comparison in the previous year”, according to the report released Tuesday.

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After a 4.5 percent decrease in July, Macau has finally broken a losing trend beginning after May 2014.

Report from the Macau Gaming and Inspection Coordination Bureau.

Macau’s gambling revenue has been under pressure the past two years as China’s economy has weakened and an anti-corruption crackdown has driven away VIP gamblers.

Casino shares rose, as investors now look to see whether operators can sustain the momentum through a key holiday week.

Macau stocks popped in trading in Hong Kong, led by Wynn Macau with a 7% gain and Sands China with a 6.4% pop. The benchmark Hang Seng Index rose 0.8 per cent. That comes as revenue at gaming tables frequented by recreational gamblers, also known as the mass market, narrowed to 1.1 percent following casino operators’ shift to target tourists.

“We estimate Wynn Palace to generate property EBITDA [earnings before interest, taxation, depreciation and amortisation] of HKD5.3 billion in 2017, which will result in a return on investment in the mid-teens [of percent]”, Mr Umansky and Mr Kurz said.

Wynn’s stock is up more than 35 percent this year-to-date.

“We need to wait for at least one more month to see if growth can be sustained, and if new casinos will bring more visitors during the peak Golden Week”, China International Capital Analyst Chris Kwai told Bloombeg. That compared with the 13.3 percent drop in the three months through March.

There also concerns the raft of casino resorts being completed in the newer Cotai district will result in intense competition, especially for existing casinos on the Macau peninsula. Wynn Palace opened this month while Sands China Ltd.’s Parisian will debut mid-September.

Wynn Palace, the US$4.2 billion luxury casino featuring a US$100 million synchronised fountain show and US$200 million-worth of art and Chinese antiques, is perceived to be off to a slow start after its August 22 opening.

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In a separate note, analysts Vitaly Umansky and Clifford Kurz of brokerage Sanford C. Bernstein Ltd still believes that Wynn Palace remains to be “a game-changing addition to Wynn Macau” that will allow the firm “to strongly compete in Cotai in both gaming and non-gaming”. “The October holiday will be the true test of whether the new property, together with The Parisian, can grow the market”.

Macau August GGR ends 26 months of contraction