Is Oversupply a Concern for Macao Casinos?
Macao casinos’ $28 billion investment in integrated resorts is set to change the region’s gaming business. All of the capacity addition that we discussed in the previous article is set to significantly increase the number of slot tables.
Interested in LVS? Don't miss the next report.
Receive e-mail alerts for new research on LVS
Three new resorts are set to open in 2016: Las Vegas Sands’s Parisian Macao (LVS), MGM Resorts’s MGM Cotai (MGM), and Wynn Resorts’s Wynn Palace (WYNN). These resorts are expected to be allotted 250 new gaming tables each, similar to the number of tables granted to Melco Crown (MPEL) and Galaxy in 2015. These new tables would lead to a 12% growth.
At the end of 1Q16, the total number of tables stood at 6,100. The growth in slot tables, coupled with declining visitor numbers, could be a major concern for Macao casinos.
Hotel rooms increase, but occupancy declines
The new resorts will almost double the number of hotel rooms on the Strip. The absence of VIPs has also freed up a lot of rooms.
Increasing room inventory makes sense only when resorts are able to actually fill these rooms. Current data seems to tell a different tale. For the first five months of 2016, hotel occupancy rate stood at 78%, a 1.4% year-over-year decline.
Room rates decline too
Increased supply has led to low room rates. According to Wells Fargo, room rates have declined by 18% as compared to 2015.
Clearly, Macao needs to see a significant increase in visitors. However, Union Gaming Research believes that the Macao government would not allow for unlimited growth in visitation.
Investors who want to avoid the risk of investing in individual casino companies may be interested in ETFs that hold casino stocks. These include the VanEck Vectors Gaming ETF (BJK) and the Consumer Discretionary Select Sector SPDR ETF (XLY).