October Macau gambling results

Just at midnight, New York time, the Macau Gaming Coordination and Inspection Bureau (DICJ) posted its report of aggregate casino win for the SAR during October.  The win, that is, the amount gamblers lost in the SAR, was MOP 28.0 billion (US$3.5 billion).  That’s up by 9.8% month-on-month, but down 23.2% year-on-year.

The result had been widely anticipated–and heavily publicized by the companies themselves, the government of the SAR and Hong Kong-based securities analysts.  Consensus estimates of the decline seem to me to have centered around -21% yoy.

The Hong Kong casino stocks were up a couple of percent in midday trading today when the DICJ report appeared.  Despite the wide publicity, the stocks immediately lost all their morning gains.  They drifted lower throughout the afternoon, ending down by around 3% for the day.

How could  stocks drop 5% on news that had arguably so fully anticipated?

I don’t think it’s that win was down 23% instead of 21%.  Both are equally weak.  More likely, in my view, is that short-term traders used the DICJ report to take profits after the stocks’ 15% gains in recent weeks.  It’s also possible that the market hadn’t grasped the current Macau casino situation as fully as I had thought.  It could be, as well, that the discounting mechanism for stocks nowadays in Hong Kong works more like the bond market in the US (reacting to strongly to current news as it hits the media) than the stock market.  (I doubt this last, but it has been a while since I devoted a serious chunk of my time to studying the Hong Kong market.)

my take

I’m not in a huge rush to buy, partly because I already have a pretty full weighting, both through the Hong Kong stocks and through WYNN and LVS.

My working hypothesis is that cyclical lows–10%+ below today’s close–have already been made.

Could the stocks drop another 5% from here–i.e., get halfway back to the lows of September?   …maybe, especially since the market upturn I anticipate will likely be in the spring or summer of 2015.  But it would take at least that much to get me interested again.  For now, I’m content to watch.

Macau gambling, May 2014

The day before yesterday, the Macau Gaming Inspection and Coordination Bureau (DICJ) posted the total monthly gambling “win” (the amount lost by gamblers) for the SAR’s casinos during May.  The results were below analysts’ expectations, causing a selloff in the US gambling stocks with Macau presence, and a minor negative ripple in the Hong Kong-traded Macau casino stocks themselves.

The year-to-date DICJ results are:

Monthly Gross Revenue from Games of Fortune in 2014 and 2013
Monthly Gross Revenue Accumulated Gross Revenue
2014 2013 Variance 2014 2013 Variance
Jan 28,739 26,864 +7.0% 28,739 26,864 +7.0%
Feb 38,007 27,084 +40.3% 66,746 53,948 +23.7%
Mar 35,453 31,336 +13.1% 102,199 85,284 +19.8%
Apr 31,318 28,305 +10.6% 133,517 113,589 +17.5%
May 32,354 29,589 +9.3% 165,871 143,178 +15.8%

Source: Macau Gaming Inspection and Coordination Bureau

What’s going on?

First of all, and least important, the market had been expecting a 10%+ year-on-year gain in aggregate casino win, based on weekly reports of business results provided by the casinos.  The falloff during the last few days of the month is most likely a random variation in the casino luck factor, one that will eventually be reversed.

More generally, the so-so rate of yoy gain in win is the result of two opposing factors.  On the one hand, increases is betting by mainland high-rollers, the almost exclusive focus of the Macau market over the past decade, have slowed to a crawl.  On the other, affluent mass-market gambling is rising sharply.  Mass market gamblers bet smaller amounts, but lose a much higher percentage of the amount bet than VIPs (who are more or less professional gamblers).  Mass market patrons want entertainment, not necessarily gambling profits, so they don’t watch what they’re doing so closely.  They also spend a lot more on things like restaurants, shows and shopping.  We’ll know more about non-gambling when June financial reports are released by the casinos, but non-gambling profits have been rising sharply from a small base.  It’s important to remember that in the salad days of Las Vegas, non-gambling amounted to half of casino industry profits.  So growth in Macau has potentially a long way to grow.

The overall Macau market is facing capacity constraints that will only begin to easy next year.  In a sense, the current lull in new capacity additions is ending up being luckily timed, since it coincides with a slowdown in the VIP market.

All in all, it seems to me that the March-May gains in casino win are more indicative of what the rest of the year will be like than January-February.

The related stocks have sold off by about 20%–more than I would have expected–in a flat Hong Kong market over the past few months.  Stocks like Sands China and Galaxy Entertainment, which have little VIP exposure and lots of mass market, have declined at least as much as Wynn Macau, which is in the opposite position.

I find the Macau stocks hard to figure out.  It’s not their profit potential, it’s the way they trade in the Hong Kong market.  The current situation of little capacity addition was well-known a year ago.  The VIP slowdown could equally well have been anticipated.  I think the mass market and non-gambling profit development has been much more positive this year than the consensus expected.  In other words, the negatives are no worse, and the positives are a lot better.  Yet the stocks went up last year and have sold off so far in 2014.

My take?  I’m in this for the long haul.  I sold my Wynn Macau quite a while ago and have been looking for a reentry point.  Not yet, though.  I continue to own Galaxy Entertainment and would own Sands China as well, if it were easier for a US citizen to buy.  I’m looking to add to my holdings, but am in no rush.

Macau gambling, October 2013

The Macau Gaming Inspection and Coordination Bureau (DICJ) recently released its tally of aggregate gambling winnings of the Chinese SAR’s casinos during the holiday month of October.  The results, in MOP millions, are as follows:

Monthly Gross Revenue from Games of Fortune in 2013 and 2012
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%
Jun 28,269 23,334 +21.1% 171,447 148,729 +15.3%
Jul 29,485 24,579 +20.0% 200,932 173,308 +15.9%
Aug 30,737 26,136 +17.6% 231,670 199,444 +16.2%
Sept 28,963 23,866 +21.4% 260,632 223,310 +16.7%
Oct 36,477 27,700 +31.7% 297,109 251,011 +18.4%

Source: Macau DICJ.

 

The monthly “win” is an all-time record for Macau, and, in my view, stunningly good.

Two factors appear to be at work:

–the expansion of casino capacity and the parallel development of non-gambling entertainment (at the insistence of the Macau government) in the Cotai region is broadening the appeal of Macau as a tourist destination and drawing in a younger, “merely” affluent crowd in large numbers, and

–the upturn in the Chinese economy is prompting the return of increasing numbers of the enormously wealthy VIP baccarat players who have until now formed the backbone of Macau’s casino industry.

 

What I find interesting is that the Hong Kong-traded Macau casino stocks have been selling off on this good news.  This is partly, I think, because the stocks have been extremely good performers over the first three quarters of the year, as it became clearer that the Chinese economy was beginning to rebound.  The fact that more speculative and less skillful operators in the Macau market have been leading the pack had already been suggesting that the recent run was getting a bit long in the tooth.  In addition, however, I think the pullback we are seeing also is in line with an emerging mood of caution I see building in stock markets around the world.

I don’t think anything is wrong, either with Macau gambling or with the strongest operators.  A while ago, I trimmed my casino holdings a bit, based solely on position size.  Others may be doing the same, only timing their move a bit better than I did.  I expect that as Macau continues to exhibit strong growth in gambling win over the coming months, the stocks will take up their outperforming ways again, with Galaxy Entertainment, Sands China and possibly Wynn Macau in the vanguard.

Macau gambling: July 2013 results + other stuff

Earlier this week the Macau Gaming Inspection and Coordination Bureau (DICJ) posted the total market casino “win” (i.e., the amount gamblers lost to the casinos) during July.  The figures are as follows:

Monthly Gross Revenue from Games of Fortune in 2013 and 2012
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%
Jun 28,269 23,334 +21.1% 171,447 148,729 +15.3%
Jul 29,485 24,579 +20.0% 200,932 173,308 +15.9%

Source: DICJ

For the fifth month in a row, the aggregate win in the SAR exceeded MOP28 billion. For the past two months, the year-on-year revenue growth comparison exceeded +20%.

It’s a bit too early for dancing in the streets, however.  A glance at the relevant date for 2012 shows that part of the apparent strength is due to the weak denominator–that is, the comparisons are easier than normal because growth in casino patronage fell off dramatically in the second half of 2012 both because of softness in the Chinese economy and the desire of big gamblers to maintain a low(er) profile in advance of the once-in-a-decade change in top leadership of the Communist Party.

Here are the 2012 figures:

Monthly Gross Revenue from Games of Fortune in 2012 and 2011
Monthly Gross Revenue Accumulated Gross Revenue
2012 2011 Variance 2012 2011 Variance
Jan 25,040 18,571 +34.8% 25,040 18,571 +34.8%
Feb 24,286 19,863 +22.3% 49,325 38,434 +28.3%
Mar 24,989 20,087 +24.4% 74,314 58,521 +27.0%
Apr 25,003 20,507 +21.9% 99,317 79,028 +25.7%
May 26,078 24,306 +7.3% 125,395 103,334 +21.3%
Jun 23,334 20,792 +12.2% 148,729 124,126 +19.8%
Jul 24,579 24,212 +1.5% 173,308 148,337 +16.8%
Aug 26,136 24,769 +5.5% 199,444 173,106 +15.2%
Sept 23,866 21,244 +12.3% 223,310 194,350 +14.9%
Oct 27,700 26,851 +3.2 251,011 221,200 +13.5%
Nov 24,882 23,058 +7.9% 275,893 244,258 +13.0%
Dec 28,245 23,608 +19.6% 304,139 267,867 +13.5%

Source: DICJ

There’s a second factor that may make the recent figures more difficult to interpret–the development of the mass market in Macau.  High-roller baccarat players in Macau are effectively professional gamblers.  They lose around 3% of the (huge) amounts they bet.  Mass market players bet far less.  But they typically lose 20%+ of their wagers.  As this latter segment grows, market win may accelerate for a while.  I don’t think we’re at that point yet, but I don’t know.

Nevertheless, the continuing resilience of the SAR’s gambling business in the face of reports of softness in the Chinese economy is encouraging.

More on Monday.

June 2013 Macau gambling statistics–no sign of slowdown

Last week the Macau Gaming Inspection and Coordination Bureau (DICJ) posted on its website the total that casinos in the SAR won from gamblers during June 2013.  The figures, in millions of Macau patacas, are:

Monthly Gross Revenue from Games of Fortune in 2013 and 2012
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%
Jun 28,269 23,334 +21.1% 171,447 148,729 +15.3%

Source: Macau DICJ

Of course, we have to be careful not to read too much into one month.  The situation is also complicated because the gambling market in the SAR is new enough that it’s difficult to know what the seasonal patterns in visitation may be–that is, whether June is usually a big month for gamblers or a weak one.  That factor is being covered up by the overall mad rush by increasing numbers of Chinese citizens to the baccarat tables.

In addition, we should note that the apparent acceleration in year-on-year revenue comparisons that we see in June is due to the effects of last year’s economic slowdown in the 2012 numbers–in advance of the November leadership change in the Communist Party–rather than a surge in revenue last month.

Still, the past four months have been the biggest in the Macau gaming market’s history.  June appears every bit as strong as the months that preceded it.  Reports I’ve read suggest that so far July is stronger than June.

This is good news.

That hasn’t helped the Macau gambling stocks, which have sold off in sympathy with the Shanghai Composite over the past six weeks or so.  Chinese stocks are falling on fears about the credit crunch I described yesterday.

The most attractive Macau gambling stocks right now, in my view, are Galaxy Entertainment and Sands China (I own Galaxy and LVS, Sands China’s US parent).  But I’m not in any rush to add to either position until I see more data on how the credit situation will unfold.  (There’s also the issue of a potential crackdown by Beijing on money laundering in Macau.  But I think this is a problem with the pre-SAR casinos and will have little effect on the companies invited into the market by the current Macau government.  In any event, in my view, stricter regulation would be another long-term plus for Macau’s development into an Asian Las Vegas.)

Macau Gambling: May 2013 Market Results

The day before yesterday, the Macau Gaming Inspection and Coordination Bureau published the aggregate amount won from patrons by the casino industry in the SAR.  Results were as follows, in millions of MOP (Macanese patacas):

Monthly Gross Revenue from Games of Fortune in 2013 and 2012
Monthly Gross Revenue Accumulated Gross Revenue
2013 2012 Variance 2013 2012 Variance
Jan 26,864 25,040 +7.3% 26,864 25,040 +7.3%
Feb 27,084 24,286 +11.5% 53,948 49,325 +9.4%
Mar 31,336 24,989 +25.4% 85,284 74,314 +14.8%
Apr 28,305 25,003 +13.2% 113,589 99,317 +14.4%
May 29,589 26,078 +13.5% 143,178 125,395 +14.2%

Source: Macau Gaming Inspection and Coordination Bureau (DICJ)

At MOP 29,6 billion (US$3.7 billion), the monthly gaming win for May was the second-highest on record, exceeded only by the MOP 31.3 billion posted during the holiday season in March.  It was also a 13.5% year-on-year gain.  The strong–but not blowout–comparison came against the last healthy month of 2012. From June onward, a combination of economic slowdown and the desire not to attract much attention in advance of the change in leadership of the Chinese Communist Party caused a stagnation in market win until last December.

what to look for in market development

1.  Although what will likely turn out to be a 15% yoy growth rate for 2013 is nothing to sneeze at, it would no longer be the gold rush we’ve come to know and love in Macau.

Normally, I’d guess that maturity for Macau gaming will be 10% annual growth–because that would basically in line with my guess at China’s trend nominal GDP expansion rate.  But since China is attempting a macroeconomic transition away from low value-added manufacturing based on large wage increases rather than currency appreciation, I want to pencil in a higher number.  I’m just not sure what it should be.

2.  In addition, I don’t think Macau is mature quite yet.  Better transportation links will allow the SAR to reach progressively deeper into the mainland for customers.

3. Macau is unique in my experience, because it is dominated by high stakes baccarat played by extremely wealthy, highly skilled gamblers who don’t lose a large percentage of their bets and who have a large chunk of their losses rebated back to them as the price of their patronage.

In contrast, upper income, but not insanely wealthy, gamblers in Las Vegas have percentage losses on their bets of about 10x what the high rollers do.  So the broadening of the market to include more of the first group may bring profits to casinos that are very much higher than Hong Kong analysts now expect.

4.  Market momentum is moving toward Cotai.  That’s the newest area.  It’s also where the new capacity is opening. Galaxy Entertainment and Sands China are the prime beneficiaries.

5.  Former also-rans are now leading the pack.  Operators like Wynn Macau, who have been the most desirable destinations as well as efficient since opening in wringing every last avo (1/100 of  pataca) from their plant and equipment, will stagnate in gaming operations until they can open new capacity.

5.  Non-gambling offerings–restaurants, shows, retail–are in their infancy in Macau.  In pre-Great Recession Las Vegas, they brought in half the industry’s profits.  If Macau follows suit–and I don’t see why it shouldn’t–this could be an enormous positive surprise to Hong Kong investors.  Wynn Macau and Sands China will likely be the stars in this arena.

the Macau gambling market, December 2012

the monthly DICJ report

Yesterday, the Macau Gaming Inspection and Coordination Bureau (DICJ is the Portuguese acronym) released monthly results for December for the casino  gambling market in the SAR.  The figures were substantially higher than consensus expectations.  This is presumably the reason why the US-based gambling companies with significant Macau presence, LVS, WYNN and MGM, were up so sharply in New York trading.

The amount won from gamblers by the Macau casinos last month was MOP 28.2 billion, or about US$3.5 billion.  That’s an all-time high for the market there.  It’s also up 19.6% year on year, the strongest rate of increase since last April.  (By the way, these “win” figures suggest Macau visitors laid down a mind-boggling US$70 billion in casino bets during December.)

As you can see from the figures at the bottom of this post, the monthly numbers don’t yet show a clear upward trend.  But to my mind they do strongly suggest that the worst for the market is behind it.

it’s the economy that’s important, not just casinos

This isn’t just about casinos and the penchant for wealthy mainland Chinese citizens to gamble.  A 13% month on month jump in gambling activity–last year, when China was beginning to worry about economic slowdown, November and December were flat–likely means that the domestic economy is starting to perk up.  Purchasing Manager statistics from the usually reliable HSBC suggest the same thing.

It may be that stimulus measures from Beijing are beginning to work.  I also think that it’s no accident that the Macau uptick comes the month after new leadership for the Chinese Communist Party has been named.  I’m willing to believe that there’s something to the talk about a crackdown on corruption emanating from Beijing.  But I also believe that it will be limited to scrutiny of the activity of a very small number of families highly plugged in to the previous regime.  Certainly, Macau visitors don’t appear to be be concerned about displaying their wealth.  Another confirming bit of evidence: Hong Kong-based Chow Tai Fook Jewellery (HK: 1929) is up by 35% since Halloween, while TIF is down by 6% over the same span.

The bottom line:  We’ll know more in the next month or two, but the Macau gambling market may be a good indicator that Chinese economic activity is increasing. That should be good for any global company with direct or indirect exposure.  Good for the casino companies, too, although I think the story for them over the next year or two will be the development of their non-casino entertainment businesses.

The DICJ figures:

* 1 HKD = 1.03MOP (Unit:MOP million )
Monthly Gross Revenue from Games of Fortune in 2012 and 2011
Monthly Gross Revenue Accumulated Gross Revenue
2012 2011 Variance 2012 2011 Variance
Jan 25,040 18,571 +34.8% 25,040 18,571 +34.8%
Feb 24,286 19,863 +22.3% 49,325 38,434 +28.3%
Mar 24,989 20,087 +24.4% 74,314 58,521 +27.0%
Apr 25,003 20,507 +21.9% 99,317 79,028 +25.7%
May 26,078 24,306 +7.3% 125,395 103,334 +21.3%
Jun 23,334 20,792 +12.2% 148,729 124,126 +19.8%
Jul 24,579 24,212 +1.5% 173,308 148,337 +16.8%
Aug 26,136 24,769 +5.5% 199,444 173,106 +15.2%
Sept 23,866 21,244 +12.3% 223,310 194,350 +14.9%
Oct 27,700 26,851 +3.2% 251,011 221,200 +13.5%
Nov 24,882 23,058 +7.9% 275,893 244,258 +13.0%
Dec 28,245 23,608 +19.6% 304,139 267,867 +13.5%

Source: Macau DICJ