Guangzhou rail to boost gaming revenue: Citi

Tuesday, January 18, 2011
Issue 1214, Page 2 & 3
Word count: 1004
Published in: Macau Daily Times

By Poyi (Natalie) Leung

Improved transportation infrastructure in Guangdong province and new casino resort properties in Cotai have prompted Citigroup to further raise the 2011/12 Macau gross gaming revenue estimates to a 25 percent and 15 percent growth respectively.

According to the January 14 “Global Gaming” report compiled by the international financial services company’s Asia Pacific/Hong Kong unit, a survey to assess ridership along the recently launched Guangzhou-Zhuhai Intercity Mass Rapid Transit (Guangzhu MRT) was conducted early this month, which found that 35 percent of the respondents intended to visit Macau more frequently this year, as the new train service can significantly reduce travel time between Guangzhou South and Zhuhai North from over four hours to around one hour and a half.

Citi said the MRT will “dramatically improve accessibility” particularly once the Zhuhai South/Gongbei Gate terminal is completed in late 2011 or early 2012. Currently, it is about a 45 minutes drive to the Macau border Gongbei Gate from Zhuhai North.

Travelers from Wuhan, the capital of Hubei province, can also take the three and a half hour high speed railway (HSR) trip to Guangzhou South Station and change to the MRT, “materially increasing the catchment area and accessible customer base for the Macau gaming operators,” the report indicates.

“We believe roughly 1.5 million people will take the MRT with Macau as their final destination on an annual basis at the current configuration,” the Citi analysts predicted.

“If we assume half of the Guangdong residents had been taking the bus services previously, the visitation to Macau could be an incremental 6 percent growth in all Mainland visitations during 2011.”

Hence, based upon the visitation and economic trends, the MRT, the high speed rail connection from Wuhan, and the opening of Galaxy Macau in the next few months, it is estimated that Macau will report a 20 percent growth in its Mainland visitor arrivals at the end of this year.

Nevertheless, the survey also found that Sands/The Venetian were overwhelmingly chosen (53 percent) by the respondents – 85 percent of them resided in Guangdong and 10 percent in Hubei province – as their favourite casinos in Macau, followed by Lisboa/Grand Lisboa at 35 percent.

Although Galaxy Entertainment’s flagship property is expected to be unveiled in Cotai in “early 2011”, Citi said only 14 percent of the survey participants were aware of the new casino resort.

“We believe Galaxy will need to materially increase its marketing and PR budget to create more of a buzz ahead of its March/April opening, particularly as a mass market property,” the report says.

Longer time in casinos

Due to the shortened journeys between Guangdong and the SAR, the Citi analysts also pointed out that day trippers will likely spend more hours at the gaming tables.

Together with the Macau gross gaming revenue (GGR) trends in 2010 and into January, the visitation outlook and room additions at Galaxy Macau, the financial services company said in the report that the full-year 2011 estimate GGR will rise by 25 percent year-on-year to nearly USD 29.5 billion (MOP 236.3 billion).

According to Citi’s channel checks, Macau table GGR through the first 11 days of January “amounted to roughly MOP 7.8 billion – up 58 percent year-on-year,” excluding slot machines revenue.

Furthermore, it is expected that the figure will grow an additional 15 percent in 2012 to almost USD 34 billion (MOP 272.3 billion), with the new Zhuhai North – Gongbei Gate extension of the MRT and Sands China’s parcels 5 and 6 coming onstream.

The 25 percent and 15 percent year-on-year growth estimates in 2011 and 2012 were each revised up from Citi’s previous expectation of 20 percent and 10 percent respectively.

The Lunar New Year holiday is fast approaching and casinos will typically make full use of the period to boost its earnings.

With this year’s festival falling just ahead of a weekend, Citi expected the February GGR to benefit from the increased weekend traffic, “possibly challenging the monthly GGR record set in December 2010 of MOP 18.9 billion”.

SJM, MGM, Wynn to lose

Properties and operators in Cotai, according to the report, are believed to be the “real beneficiaries” over the next few years, particularly those with a new product offering such as Galaxy Entertainment and Sands China.

“Galaxy will likely be the principal market-share winner in 2011 estimate with the opening of Galaxy Macau, while 2012 will likely belong to Sands China with sites 5 and 6,” the report says.

It is estimated that Galaxy will increase its market share by three percent to 14 percent this year, with further improvement to 15 percent in 2012.

Sands China’s market share is also expected to improve from 19 percent estimated in 2011 to 22 percent in 2012.

While Melco Crown Entertainment (MPEL) should continue to benefit from continued migration of traffic to Cotai, Citi has left its share unchanged at around 15 percent.

However, with regard to the three gaming operators that did not yet expand to the Cotai Strip, the analysts have trimmed the market-share estimates for SJM from 31 to 29 percent in 2011, falling further to 27 percent in 2012.

In addition, Wynn will lose one percent of its share to 14 percent, while MGM is anticipated to maintain a 9 percent share this year (both declining one percentage point in 2012 to 13 percent and 8 percent respectively), the report shows.

Since the estimates have yet to factor in any further development in Cotai, Citi said it believes “Wynn and MGM will likely continue to lose share from their peninsula properties”.

“SJM is far more likely to open a Cotai property prior to 2015, in our opinion, but with the landscape of Cotai seemingly changing on a monthly basis, anything beyond [Sands’] sites 5 and 6 is up in the air.”

As a result of the 2011 and 2012 GGR forecasts and market share splits, Citi decided to raise the full-year 2011 and full-year 2012 earnings by 13 percent and 15 percent for Macau, implying average year-on-year growth of about 40 percent per year.


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