Has the Ongoing Decline in Macau Gaming Revenue Finally Ended?

September 1, 2016 by Jon C. Ogg

If there is one trend in gambling that has held steadily for the past two years or more, it would be that Macau’s casino and gaming revenues have been in decline. Maybe it really is true that nothing lasts forever. Macau’s Gaming Inspection and Coordination Bureau reported that August’s gross gaming revenues were up 1.1% to roughly $2.4 billion after currency conversions.

The long and short of the matter is that this breaks a 26-month continual decline. Some analysts have been speculating and predicting that gaming revenues would recover. Some analysts and speculators were way too early on that call. Whether late or not, the news is creating a move in the top casino players with Macau operations and expansion plans.

What stands out about the data from the monthly reporting is that the gains were in the monthly gross revenue figures, and that this almost went positive in February with a mere −0.1% decline.

The report showed that the accumulated gross revenue on a year-to-date basis was still down 9.1% in August, and that figure will take more months of positive readings before it goes positive.

Melco Crown Entertainment Ltd. (NASDAQ: MPEL) has the most direct exposure to Macau, although it has been diversifying geographies as well. Melco Crown shares traded up 7.4% at $13.94 right after the opening bell on Thursday. Its 52-week trading range is $11.91 to $20.23. Melco Crown has a consensus analyst price target of $16.14, which is down from $18.08 back on June 1. Its market cap is $7.1 billion.

Melco Crown’s combined earnings statement said about earnings and related issues in Macau back on August 4:

We delivered a 20% year-over-year increase in Adjusted property EBITDA during the second quarter of 2016 as a result of our commitment to controlling costs and increased exposure to the higher margin mass market segment in Macau, together with a strong performance at our integrated resort in Manila.

Macau continues to face challenges in gaming demand. However, we believe that revenue trends, particularly in the mass market segments, will improve as Macau further evolves in to a multi-faceted, mass market-focused destination, deserving the accolade of being the most exciting gaming and entertainment destination in Asia.

Our company is well positioned to cater to these evolving trends in Macau, with a unique array of non-gaming, mass market-focused amenities across multiple properties that provide an ideal platform to deliver a compelling lodging, entertainment and retail offering to our customers.

Wynn Resorts Ltd. (NASDAQ: WYNN) was last seen trading up 5.6% at $94.37 on Thursday in active trading. Its 52-week range is $49.95 to $105.69, and it has a consensus target price of $102.15. That target is actually up about $1.50 from where it was on June 1. Wynn’s market cap is almost $10 billion.

One issue that may stand out for Wynn here is that it just announced the Wynn Palace opening in Cotai, Macau, in further development of the $4.2 billion resort. Steve Wynn said in August:

Wynn Palace is arguably the most beautiful hotel in the world, which is a wonderful thing to be able to say. But it is not in London, Paris, New York or Rome. It is in Cotai, in Macau, and sits here for all the world to come and see. It’s our gift to the community, to the public. It will be here forever and it’s perhaps unlikely we’ll see a place of this scope and artfulness in our lifetimes again.

To be the prettiest hotel in the world, frankly, is something that money and good taste can buy. But to be the best hotel in the world is something else altogether. In any hospitality business there are only two words that matter — guest experience.  All the rest is irrelevant, and all of the marble and crystal chandeliers, and all of the wonderful good taste that has been put into this building is dedicated to that one thing — guest experience. It takes six-and-a-half years to design a magnificent building like this, and yes, the name on the sign is Wynn Palace. But tonight this becomes the palace of the people who work here, and it is they who will make this the best hotel in the world.

Las Vegas Sands Corp. (NYSE: LVS) shares were up 5.4% at $52.91 Thursday morning, and its market cap is almost $42 billion. The 52-week range is $34.88 to $54.80, and the consensus target price is $51.64. That price objective is still down almost $1.00 from June 1.

The Las Vegas Sands earnings report in late July addressed the situation in Macau. Sheldon Adelson’s quote said:

The operating environment in Macao remained challenging during the quarter; but we do see signs of stabilization, particularly in the mass market. Our mass gaming revenues in the month of June 2016 increased versus the same month in 2015, the first year-on-year monthly mass gaming growth we have experienced in nearly two years.  Our focus on the higher margin mass and non-gaming segments and the geographic diversification of our cash flows enabled us to deliver almost $400 million of net income and $955 million of consolidated adjusted property EBITDA during the quarter.  We remain steadfast in our focus on the consistent execution of our proven global growth strategy, which leverages the power of our unique convention-based Integrated Resort business model.

Our convention-based Integrated Resort business model appeals to the broadest set of customers, generates the most diversified set of cash flows and delivers the industry’s highest revenue and profit from non-gaming segments, while bringing unsurpassed economic and diversification benefits to the regions in which we operate. We remain confident in our ability to further extend our global leadership position and deliver strong growth in the future.

The prudent management of our cash flow, including the ability to continue the return of capital to shareholders while maintaining a strong balance sheet and ample liquidity to invest in future growth opportunities, remains a cornerstone of our strategy.

Again, nothing lasts forever.

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