Following three years of near-zero arrivals, tourists are flooding back to Macau. The city known for its architectural blend of European and Chinese buildings as a backdrop to casino halls welcomed 28 million visitors in 2023, accounting for more than 70% of 2019’s pre-pandemic levels.
There is palpable optimism that Macau’s visitor numbers will continue to rise. Tourism officials are targeting 33 million arrivals for 2024, representing just below what neighboring Hong Kong achieved in 2023. The figures over Chinese New Year this week are expected to be as much, or even more, than pre-pandemic levels.
That outlook bodes well for industries that rely on tourism, including Macau’s casinos and integrated resorts. Gross gaming revenue (GGR) reached MOP180 billion ($22.3 billion) in 2023, accounting for 62% of 2019. Those numbers were ahead of estimates, suggesting tourists are including casino trips on their itineraries.
Despite the ongoing recovery, equity valuations for casino operators continue to struggle. Alidad Tash, managing director of 2NT8, a consultancy based in Macau, believes that the disconnect stems from investors anticipating a material gaming slowdown ahead.
“Even after the operators exceeded expectations in 2023 and are looking at a promising 2024, investors are focused on a sluggish Chinese economy rather than seeing the pickup in Macau,” explained Tash, speaking to FinanceAsia.
Macau casino stocks rallied alongside Chinese equities at the beginning of 2023 as travel restrictions eased. However, the climb proved short-lived. The sector still trades below its valuation levels from a decade ago while stocks derated when policymakers tightened capital outflow restrictions and encouraged casino operators to invest more into non-gaming offerings, a message reemphasised when the gaming licenses were renewed.
Though set into motion years ago, the customer transition has occurred faster than anticipated with mass gamers accounting for 80% of GGR from 60% in 2019, according to Tash. Operationally, the shift is margin accretive, since higher-end players require casino operators to dole out junket commission fees and a slew of complimentary perks to get VIP gamers inside.
But the overall GGR brought per gamer in less. “Casino operators will now need to shift their resources on building relationships with a million minions, instead of a few whales,” said Tash.
Additional spending
Macau casinos still enjoy the “Build Then They Will Come” narrative, said Angela Hanlee, senior analyst of Apac gaming and hospitality at Blooming Intelligence, speaking to FA, making a reference to the late 1980s film “Field of Dreams.”
Construction cranes populate the city skyline as new hotels come onboard and casinos extend their resort properties, reflecting the operator’s commitment to Macau’s future.
All incumbents had their existing license renewed, albeit for 10 years compared to the previous 20-year concession while the tax paid by GGR nudged higher to 40%, nearly six times more than those in Las Vegas.
Underscoring that confidence is the amount the operators are planning to spend, having allocated over MOP100 billion to non-gaming facilities under the new agreement. That pledge was bumped by 20% after the industry breached the MOP180 billion GGR threshold in 2023 without a full calendar year of travel free restrictions. Bloomberg Intelligence expects gaming revenue to increase by 22% this year.
“These investments have already been allocated into non-gaming areas, such as new accommodations and MICE spaces,” noted Bloomberg’s Hanlee, adding “non-gaming facilities could increase the mix of mass gaming business, which is more defensive to economic cycles.”
Analysts do not expect that extra spending to instigate any balance sheet stress. But the dividends once enjoyed by investors could be in the past. Though dividend policies have not been scrapped, investors must seek initial approval before any distribution, explained Tash.
“That’s not a reason to be excited. I anticipate fewer dividends to be allowed, here and there, every couple of years, in much smaller amounts than before,” he said.
Despite flexible balance sheets and tourists heading to their properties, operators may be limited by what happened outside their casinos. Public transportation has been susceptible to traffic jams and delays in construction, while tightness persists in the workforce. Even as visitor numbers of approach historical highs, enjoyment may taper off due to inconveniences, capping tourist arrivals.
For now, Macau’s casino recovery remains ongoing. But given the challenges, perhaps the hardest part for the operators is finding projects to spend all that money coming through the door on.
In another sign of a shift in the economy, the founder of Hong Kong nightclub Dragon-i, Gilbert Yeung, is teaming up with Hong Kong-based family office Black Spade Capital to launch a "new top-notch and exclusive global lifestyle, entertainment and hospitality group", according to a release. The first venue will be in Macau.
