Risks Rising In Gaming Industry

BMI View: Macau gaming revenue growth continues to slow. Further weakness is likely as junket operators come under increased scrutiny from regulators, with local casino stocks clearly pricing in a more subdued revenue outlook over the coming quarters.

Since our previous article on the ongoing slowdown in Macau's gaming industry and overall economy ( see 'Warning Signs For Liquidity Boom', February 10), the Special Administrative Region (SAR) has witnessed further signs of weakness in its crucial VIP gaming segment. Although gaming revenues came in at a solid MOP31.3bn (USD3.92bn) in April, which marked a 10.6% y-o-y increase, the slowdown in momentum is evident in the accompanying chart. Furthermore, as junket operators (organisation who arrange credit lines for VIP gamblers) come under increased scrutiny from regulators, the tide is turning against the highly-lucrative industry. A recent high profile arrest of a large shareholder of a Macau junket operator in March and the disappearance of another junket investor in April has dampened sentiment in the high-roller segment, which accounts for roughly 70% of total gambling revenues, and we are likely to see further declines in revenue growth over the coming months.

The combination of ongoing tightening of liquidity in mainland China, and heightened efforts by regulators to make the industry more transparent and cut down money laundering activities, is likely to see gaming revenues continue to decline. The slowdown in revenues also comes at a time when capacity is on the rise, as the enclave will see the opening of eight new resorts over the next three years, and competition from the likes of the Philippines increases.

Waning Momentum
Macau - Total Revenues, Games Of Fortune

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