Macau sets US$25b gaming target, below 2017 estimates

[HONG KONG] The head of Macau's government gave a conservative forecast for gambling revenue next year that's 13 per cent below analysts' estimates amid a nascent recovery in the world's biggest casino hub.

Macau's government is confident the economy will recover to grow in the low single-digits in 2017, Chief Executive Fernando Chui said at a briefing after his annual policy address Tuesday.

Mr Chui's gambling revenue target is unchanged from his forecast for 2016, as the government seeks to limit the growth of its casino industry and pushed operators such as Las Vegas Sands Corp and Galaxy Entertainment Group Ltd to focus on tourists instead of hard-core gamblers.

"We didn't set a higher target than this year because we think there are still uncertain factors," Mr Chui said, referring to his gaming revenue forecast of 200 billion patacas (S$35.39 billion) for 2017.

That compares with the median estimate of 230 billion patacas from five analysts surveyed by Bloomberg.

Macau's casino industry has been recovering since August from 26-straight months of revenue declines as operators open family-friendly resorts, while a two-year slump in its gross domestic product has also eased.

The city's shift from high-stakes Chinese bettors comes amid President Xi Jinping's efforts to curb official corruption and limit capital outflow, ordering Macau to diversify from gambling during his visit two years ago.

Macau casino stocks rose in Hong Kong trading Wednesday, led by MGM China Holdings Ltd, which rose as much as 3.3 per cent. Galaxy gained as much as 1.1 per cent and Sands China Ltd advanced 1.3 per cent.

The Bloomberg Intelligence index of Macau gaming shares had gained 27 per cent this year through Tuesday, ahead of the 1.9 per cent rise in Hong Kong's benchmark Hang Seng Index.

Macau's recovery comes as China signals a crackdown on foreign casinos that woo its citizens to gamble overseas, detaining 18 employees of Australia's Crown Resorts Ltd involved in marketing to high-rollers.

Macau's gaming regulator chief Paulo Chan met with the city's six casino operators after the incident, reminding them to obey local laws when working outside the gambling hub and adding that Macau gaming won't be affected by the arrests.

Speaking at a casino industry event in Macau on Tuesday, Mr Chan said the government will continue strengthening its laws to regulate the city's gaming industry, echoing comments from Mr Chui's address.

The gaming regulator has also had several discussions on raising entry barriers for junket operators, middle-men who bring in mainland Chinese players and lend them money to play with, he said.

"The incrementally stringent regulatory tone from this policy address and the Chief Executive's own guidance, in our view, do dampen the potential for out-sized gross gaming revenue growth next year, as is widely expected by consensus," Daiwa Capital Markets Hong Kong Ltd analysts led by Jamie Soo wrote in a note.

The Daiwa analysts reiterated their forecast for a five per cent gain in Macau casino revenue for 2017, while maintaining an overall negative view for the industry.

Analysts expect gambling revenue for 2016 will comfortably exceed Mr Chui's forecast, with the median of four estimates for 220.5 billion patacas, a decline of 4.5 per cent from 2015. Macau has already reported 184.6 billion patacas in gambling receipts in the first ten months of this year.

"The government has historically, and rightly, presented a conservative forecast as it relates to gross gaming revenue," Grant Govertsen, a Macau-based gaming analyst at Union Gaming Group LLC, said by e-mail.

"Based on trends we're seeing today, we remain comfortable with our expectations for mid-single digit growth next year."

BLOOMBERG