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Portfolio | Casinos balance customers against costs

With VIP revenue on the slide, Macau’s gaming sector is refocusing on the mass market but faces a cost challenge

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Melco Crown Entertainment improved its mass and retail footprint this week with the newly opened Studio City. Photo: AFP

As Macau’s gaming revenue flattens out after fluctuating around this month’s National Day “golden week” holiday, views differ on the sector’s prospects and who is poised to cash in on a rising mass market while containing development costs.

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Last week’s gross gaming revenue was HK$3.8 billion, with an average daily rate of HK$540 million. That’s the same daily rate as September’s average, a year-on-year decline of 32 per cent, Daiwa analysts said.

The week-long holiday at the start of October supplied a boost, but despite an increase in visitor numbers, gaming revenue for the week was down 30 per cent compared to the same week last year, according to Morgan Stanley. It also created a hangover effect the following week, from which last week’s result was a 21 per cent rebound.

With a casino smoking ban having come into effect from October 6, visa restrictions for mainland visitors, a crackdown on money flows through UnionPay, and a junket industry facing increased scrutiny and declining liquidity, the headwinds look daunting.

We believe the policy headwind is largely behind us and expect the positive sentiment to drive the stocks
Leon Liao, Jefferies

But analysts see buying opportunities. With the casino sector heavily discounted after underperforming the Hang Seng Index throughout the year – including by 9 per cent in September – stocks like Galaxy Entertainment were “too cheap to ignore”, Morgan Stanley analysts wrote in an October 9 report.

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And, pointing to a relaxation of transit visa rules and reconsideration of the smoking ban for VIP rooms, Jefferies said the mood was improving. “We believe the policy headwind is largely behind us and expect the positive sentiment to drive the stocks,” equity analyst Leon Liao wrote in a report last week.

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