Deutsche Bank AG’s Karen Tang said in a research note on Tuesday that Macau casino stocks are entering a “multi-year earnings decline cycle” due to negative factors such as falling VIP and premium mass play; smaller minimum bets from those that are still gambling; competition from other casino gaming destinations; and more challenging operating leverage as local operators offer improved incentives to remaining players. Underpinning all of these problems are changes in the structure of China’s newly rich:
“We…believe that wealth creation in China is changing from ‘resources and relationship-based’ in the last five years (as in the coal mining and property industries) into ‘innovation and entrepreneurial-based’ (as in Internet and consumer services) in the next five years… While these newly minted millionaires may also be gambling VIP-style, their average bet sizes will also likely be lower than the previous generations of coal mine owner VIPs.”
Tang also singled out the impact weaker currencies in other casino gaming jurisdictions are having on Macau casino stocks:
“Over Chinese New Year, many premium mass players went to Europe, Japan and [South] Korea instead on weaker currencies. Many casinos had to comp [offer free] rooms to lower-tier players. We think The Street still underestimates this… operating leverage, and its margin impact…”
In addition to Tang’s concerns, Nomura analysts are “concerned” that reported delays and cost increases on the Hong Kong-Zhuhai-Macau bridge project and delays to Macau’s Light Rail Transit (LRT) system will add to the challenges faced by new Macau resorts.
To read the whole article, New style China wealth to hit Macau earnings for years: DB, go to the website of GGRAsia. In addition, check out our complete Macau casino stock list page.
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