UPDATE: Macau Gambling Revenue Soars 42% In 2011; 2012 Outlook Cloudy
January 03 2012 - 2:50AM
Dow Jones News
HONG KONG (Dow Jones)--Gambling revenue in Macau rose 25% in
December from a year earlier, government statistics showed Tuesday,
capping off a year of incredible growth fuelled by players from
mainland China despite intensifying concerns about the effects of
credit-tightening or an economic slowdown there.
Macau, the only place in China where casino gambling is legal,
saw gambling revenue soar 42% in 2011 to a record MOP267.87 billion
(US$33.47 billion). The Chinese territory remains the largest
gambling center in the world, with that figure over five times the
size of the individual hauls analysts forecast the Las Vegas Strip
and new Asian rival Singapore to record in 2011.
In December, gambling revenue in Macau rose to MOP23.61 billion,
up from MOP18.88 billion a year earlier, according to data from the
territory's Gaming Inspection and Coordination Bureau.
Revenue growth has been on a tear since the end of 2009, with
players continuing to place bets regardless of China's tightening
measures and local government policies aimed at slowing growth to a
more measured pace.
The blistering pace of growth in 2011 "came as a surprise to
most investors," said CLSA analyst Richard Huang. Those who did
invest, however, enjoyed handsome share-price gains. Shares of
Galaxy Entertainment Group Ltd. (0027.HK), which opened its
enormous flagship Galaxy Macau casino in May, rose 62% over the
year, while those of Melco International Development Ltd. (0200.HK)
rose 30% and those of Sands China Ltd. (1928.HK), the Macau unit of
Las Vegas Sands Corp. (LVS), jumped 29%.
The sharp gains contrasted the 20% decline in Hong Kong's
benchmark Hang Seng Index for 2011.
Nonetheless, analysts believe the outlook for 2012 isn't as rosy
and expect the pace of growth to slow, if for no other reason than
the very large haul recorded the previous year.
They point to intensifying concerns over the sustainability of
the recent explosive growth in VIP gambling, which accounts for
nearly 75% of all gambling revenue in Macau.
The VIP market is driven by junkets operators, which bring
high-spending gamblers to the casinos, issue them credit and
collect debts in exchange for commission. As gambling debt isn't
recognized in China, there are no legal means for casinos to
recover debts owed to them by Chinese players.
However, little is known about junket operations. Their capital
positions "aren't as strong as the street believes," wrote Wells
Fargo analyst Cameron McKnight in a recent report.
A "modest decrease in VIP junkets' working capital efficiency,
which is very likely in a slowdown scenario, could eliminate the
majority of junkets' surplus capital," he wrote, adding that the
Macau government's gambling table restrictions would be a
significant supply constraint on VIP volumes.
McKnight forecast Macau gambling revenue to grow a much more
modest 11% in 2012.
It was concerns over junkets' liquidity, attributed by some to
news that many small private businesses in China's eastern city of
Wenzhou had gone belly-up because they couldn't repay maturing bank
loans, that drove a chilling across-the-board sell-off in casino
shares in early October.
SJM Holdings Ltd. (0880.HK), Macau's largest operator by
revenue, tanked 26% in just one trading session. Data has yet to
show any evidence of an impending crash in Macau though, and
October ended up setting a monthly all-time high for Macau gambling
revenue.
But it is the opaque and notoriously difficult-to-forecast
nature of the VIP business that has kept investors jittery and will
likely continue to do so in 2012, analysts say. One of the key
focuses for the year will be on "whether or not the floor is going
to fall out of the VIP market," said Union Gaming analyst Grant
Govertson. However, "I don't think [it] would," he said.
-By Kate O'Keeffe, Dow Jones Newswires; 852-2802-7002;
kathryn.okeeffe@dowjones.com