Galaxy threatens SJM market lead: Gaming record likely in January

In the first two weeks of 2012 Galaxy – mostly thanks to its new Cotai resort – recorded higher gaming revenues than long-time leader SJM, which runs Grand Lisboa and Lisboa casinos

The local gaming market is likely to set new record revenues this month, thanks to the upcoming Chinese New Year, analysts believe. And in the first weeks of January Galaxy Entertainment Group is taking up a bigger market share than long-time leader Sociedade de Jogos de Macau (SJM).
The weeklong Chinese New Year vacation in the mainland starts officially on Monday, which “effectively extends the holiday period by an additional two days as compared to last year,” Union Gaming Research wrote in a note to investors.
The company’s analysts expect record gaming revenue in January, “in a range of MOP 28 billion to 28.6 billion”.
“This would imply 51 to 56 percent growth as compared to the previous January and 41 to 46 percent growth as compared to the previous February,” which included the Chinese New Year.
This forecast would be four to eight percent higher than the previous all-time record of MOP 26.9 billion in October 2011, driven by China’s Golden Week holiday.
Union Gaming Research believes the industry will generate an average of between MOP 700 and 725 million per day during January. That figure could more than double to a daily average of MOP 1.6 billion during the seven-day New Year period for a total of MOP 11.2 billion.

Strong demand

On Tuesday HSBC Global Research analyst Sean Monaghan wrote in a note to investors that gaming growth slowed during the first week of 2012, to 15 percent year-on-year.
“This looks low versus our expectations of 30 percent [growth] for January and could reflect a lull before the start of the all-important Chinese New Year, which starts late January versus February in 2011,” Monaghan conceded.

Gaming revenue could more than double to a daily average of MOP 1.6 billion during the seven-day New Year period

Until last Sunday revenue hit MOP 11.2 billion with a daily average of about MOP 702 million, according to Tribuna de Macau. “In the first half of this month the casinos had good results, within average and expectations,” an industry source told the Portuguese-language newspaper.
But Union Gaming Research is still forecasting a 30 percent growth for casino revenue during the first quarter of 2012.
“We continue to believe the VIP segment should remain strong through at least the early part of 2012, as our channel checks suggest VIP demand is growing, not shrinking (despite macro China fears) with junkets asking for additional tables at many / most properties,” the analysts wrote.
In addition “new supply in the form of Sands China’s Cotai Central [ slated to open this spring ] should be a driver of demand, much as other new properties have driven demand previously (most recently Galaxy Macau),” which opened last May, the note explains.

Change of guard

In the first two weeks of 2012 Galaxy recorded higher gross gaming revenues than long-time market leader SJM, Tribuna de Macau wrote. According to data compiled by the newspaper, the six casinos operated under Galaxy’s concession – a third party runs four of those – recorded revenues of about MOP 2.1 billion.
This figure is higher than the MOP 2 billion registered in the 20 casinos belonging to Stanley Ho’s SJM, of which most are run by a third party.
Galaxy’s market share has soared since the opening of its Cotai resort last May. While in April the group founded by Lui Che Woo had a slice of just nine percent in July it had reached 19 percent to secure the second spot in the gaming ranking.

According to data compiled by Macau Daily Times, SJM remained the market leader with a 27 percent share last month, followed by Galaxy with 19.5 percent.
If the trend registered at last Sunday remains unchanged then it will be just the second time since the liberalisation of the gaming market, in 2002, that SJM has lost the first place in the ranking.
The only other such occasion took place in December 2007, when Venetian Macau had revenues of MOP 2.41 billion to overtake SJM’s MOP 2.39 billion. Venetian’s lead was short-lived, as SJM quickly rebounded to take a 30 percent market share in the following month, leaving Sheldon Adelson’s company nine points behind.

Operator profits

In the last quarter the local casino operators were able to squeeze more profits out of their business, as their operational performance improved, Morgan Stanley’s Praveen K. Choudhary wrote.
The analyst expects Macau’s casino industry to report a year-on-year growth of 55 percent for its earnings before interest, taxes, depreciation, and amortization (EBITDA) during the fourth quarter of 2011.

‘Our channel checks suggest VIP demand is growing, not shrinking (despite macro China fears) with junkets asking for additional tables at many / most properties’

-Union Gaming Research

That would represent a 12 percent increase from the third quarter-on-quarter, he wrote in a note to investors quoted by Macau Business.
Perhaps more importantly, the 55 percent growth is higher than the 33.4 percent raise in gaming revenue recorded in the last quarter, which means the casino operators have improved their operational performance.
“We expect MGM China, Sands China and Galaxy to deliver double-digit growth in EBITDA on a quarter-on-quarter basis in the upcoming fourth quarter results,” Choudhary wrote.
The Morgan Stanley analyst believes Galaxy will have the best operational performance at MOP 15.8 billion, up by 10 percent quarter-on-quarter. Sands China would come second with EBITDA of MOP 3.5 billion, up by 14 percent.
Yet the biggest growth, 29 percent, is forecasted for MGM China, with property EBITDA of HKD 1.5 billion. On the contrary, Melco Crown Entertainment is the only operator expected to see its performance drop, by seven percent, to MOP 1.8 billion.
According to Choudhary, Wynn Macau could reach an EBITDA of MOP 2.5 billion, up by seven percent.
A similar increase is expected for SJM with an operational performance of HKD 1.8 billion. Despite having 20 casinos and the biggest market share in the previous quarter, Stanley Ho’s company is hindered by the fact that most of its casinos are run by a third party.

V.Q.