Financial analysts are painting a gloomy picture for the Macau casino industry over the next few months.
Alarm bells started ringing last week when Wynn Resorts’ share price dropped 14 per cent after the company published earnings for the third quarter.
While operating revenue at Wynn Palace exceeded expectations by US $90 million, industry insiders are wary of putting too much stock in those numbers.
Casino takings spiked during Golden Week – a seven-day national holiday in early October – but they have fallen dramatically since.
“Since Golden Week, we’ve noticed that during the midweek, it’s been quite choppy and the weekends have been sporadic,” said Wynn CEO Matthew Maddox.
“We can have one big weekend, maybe one or two days are big as opposed to all three. And so what we’ve seen post-Golden Week has been a slowdown.
“And we’ve seen it, in particular, in the premium end of the business, premium mass, premium slots, and VIP, and that is where the vast majority of our EBITDA comes from.”
Wynn’s projections were some 20 per cent below what Wall Street predicted.
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Some analysts, including Deutsche Bank’s Carlo Santarelli, say the US gambling giant has put forth an “overly conservative guide”.
But others, like Credit Suisse’s Cameron McKnight, believe the Wynn figures could signal the beginning a dark period for Macau.
“Wynn noted that Golden Week was very strong in October, but business dropped sharply after that and has remained volatile since then,” McKnight said in a note to clients.
“Further, the company noted that it does not believe it is losing share – this means their guidance is either extremely conservative or the market has turned negative in November and December.”
Most worrying of all is the recent slowing down of the Chinese economy.
Decelerating credit cycles and a precarious housing market do not bode well for Macau, which relies heavily on business from the mainland.
It was only a few years ago, in 2014 and 2015, that a similar situation collided with new government regulations to send the region’s casinos into a free fall.
McKnight and other analysts have noted that Macau casino revenue has a tendency to lag several months – sometimes over a year – behind Chinese economic trends.
Thus, Wynn and its rivals in Asia’s gambling mecca are bracing for a rough end to the year regardless of what happens in China in the immediate future.