Fitch Ratings’ gaming team visited Hong Kong, Macau, Japan and South Korea during the weeks of April 20th and 27th to met with operators, pachinko companies, consultants and investors along with Macau’s government officials and South Korea’s Ministry of Culture, Sports and Tourism. Their just released conclusions:
The team came away feeling more negative on Macau’s near-to-medium term prospects. In Japan Fitch now feel that the chances of an IR promotion bill passing this year is slightly better than 50/50 and in Korea Fitch felt that there is very little to no sentiment for expanding gaming to locals. Upon our return Fitch revised its Macau revenue growth forecast to -29% from -22% and Fitch’s sovereign team affirmed Macau’s rating at ‘AA-‘ with a Stable Outlook reflecting the SAR’s exceptionally strong balance sheet.
Headwinds for Macau casino gaming include:
- The Secretary for Social Affairs and Culture’s proposal to cap visitation from mainland China at 21 million.
- A complete smoking ban in Macau’s casinos proposed by the director of the Tobacco Prevention and Control Office.
- Delays in key transportation infrastructure projects, including the bridge to Hong Kong and the intracity light rail.
Nevertheless:
Fitch’s long-term positive outlook for Macau remains intact as Fitch continues to believe the APAC region is underpenetrated, at least as far a mass market is concerned. However, it appears that Macau is now in a “new normal” and it may take several years before the market returns to above USD40 billion in annual gaming revenues.
In addition, Fitch Ratings has also just affirmed the Issuer Default Ratings (IDRs) for Las Vegas Sands Corp (NYSE:LVS) and Wynn Resorts, Limited (NASDAQ:WYNN) at ‘BBB-‘ and ‘BB’, respectively; affirmed the IDR for MGM Resorts International (NYSE:MGM) at ‘B+’ and MGM’s Macau subsidiaries, MGM Grand Paradise S.A. and MGM China Holdings Ltd, at ‘BB’; and said the Rating Outlook for LVS and Wynn’s IDRs remains Stable, the Outlook for MGM is Positive and revised the Outlooks for MGM’s Macau subsidiaries to Stable from Positive.
Fitch Ratings believes their financial profiles can withstand the pressures related to the current downturn in Macau casino gaming as well as their respective development pipelines.
Some other key takeaways from Fitch Ratings include:
- There is a better than 50/50 chance that Japan legalizes casinos this year in which case Las Vegas Sands Corp is well positioned to compete for one of the integrated resort licenses. However and should Las Vegas Sands Corp prevail, construction is at least two years away with heavy spending not happening for another one-two years after that.
- Wynn Resorts, Limited will also be a competitive contender for a gaming license in Japan if the country legalizes casino resorts.
- For MGM Resorts International, Macau represents about 30% of consolidated revenues compared to 60% for Las Vegas Sands Corp and 70% for Wynn Resorts, Limited. Any weakness in Macau casino gaming will be offset by the stability in MGM Resorts International’s Las Vegas and US regional markets.
- Fitch projects Macau’s casino gaming revenue to decline by 29% in 2015.
To read the whole press release, Fitch’s GLL Team Publishes Trip Takeaways from Macau, Japan, Korea with LVS, MGM & WYNN Analysis, and Fitch Affirms Wynn, LVS & MGM’s Ratings; Operating Pressures in Macau Taken Into Account, go to the website Fitch Ratings. In addition, check out our Macau Casino stock list page.
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