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Macao Revenue Beats Expectations by a Wide Margin

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May revenue marks a high point

According to the Gaming Inspection and Coordination Bureau, Macao’s gross gaming revenue has risen 23.7% YoY (year-over-year) to 22.7 billion Macao patacas, or $2.8 billion. The revenue growth beat analysts’ estimate by a wide margin. Analysts had forecast Macao’s May revenue to grow 16.5% YoY. May marks the tenth consecutive month of revenue growth for the gaming market, and the fourth consecutive month of double-digit revenue growth. The Chinese government’s crackdown on corruption in 2014 led to a decline in revenue for two years. 

As of May 2017, revenue had grown 15.8% YoY to 106.4 billion patacas, or $13.2 billion. In his visit to Macao in May, National People’s Congress chairman Zhang Dejiang seemed highly supportive of the region’s economy.

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Reality check

However, analysts continue to be cautious about Macao. Most of the recent growth has been driven by the VIP segment. The sustainability of this revenue growth remains questionable, especially if credit expansion in China slows down. China’s policies on capital outflow remain a big threat to the industry’s rebound.

Revenue expected to peak

Analysts expect Macao’s June revenue to record a growth of 30% YoY, a growth peak for 2017. In 2H17, revenue growth is expected to slow down. Investors should also remember that this growth is coming off a very low base after two years of continuous revenue decline.

Investors can gain exposure to casino stocks by investing in the iShares US Consumer Services ETF (IYC), which invests 0.52% of its portfolio in MGM Resorts (MGM) and 0.35% in Wynn Resorts (WYNN). It has no holdings in Las Vegas Sands (LVS) or Melco Resorts & Entertainment (MLCO).

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