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GREATER CHINA

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atings agency Fitch said it’s not expecting a V-shaped recovery in Macau, but added its voice to the growing chorus of opinion that the market may have finally stabilized. According to analysts, EBITDA at the six operators may have returned to positive territory in Q3. “Company EBITDA could grow to US$1.57 billion (+5 percent YoY, +7 percent QoQ) due to cost cutting, seasonality and higher rental income, partially offset by increased operating expenses from the opening of the Parisian and Wynn Palace,” Morgan Stanley said in a note. Union Gaming agreed, adding that the grind and base mass segments of the market continue to be the strongest performers. Las Vegas Sands’ French-themed The Parisian Macao was the latest entrant, opening its doors in mid-September. The resort was widely praised for having tapped into the right segment of the market at the right time. The $2.8 billion property aims to provide a piece of France in the center of Macau, playing into the desires of many mainland Chinese, who list Europe as among their dream travel destinations. Famous landmarks “Look at where Chinese outbound have been traveling to predominantly in the past decade. Paris and the Eiffel tour are iconic to Chinese visitors,” said Glenn McCartney, associate professor in Gaming & Hospitality Management, University of Macau. “There has been the mention of a Londonthemed resort possibility where you could imagine iconic British scenes such as the British flag, Tower Bridge to the British phone box. Sure there are many more attractions around France and the UK, but in the world of the fabricated theme environment and winning audiences, you

GROSS GAMING REVENUE Y15 MOP 230.84b

-34.3%

Y16 October MOP18,8b

+8.8%

Y16E MOP200bb (Source: DICJ)

pick those that will appeal the most.” CLSA said the resort had a much more family-oriented feel to it than the upscale Wynn Palace, which made its debut the prior month. The opening also solidifies Sands China’s position at the heart of Macau, with the Venetian next door and Sands Cotai Central across the road. In the near future, the properties will be connected so that visitors don’t have to set foot outside. “This issue of location on Cotai and

WE HAVE UNDERAPPRECIATED THE LOCATION OF THESE PROPERTIES AND, PERHAPS MORE IMPORTANTLY, THE CONNECTIVITY TO OTHER RESORTS. THIS SHOULD HAVE BEEN OBVIOUS AFTER WE SAW THE CHALLENGES OF STUDIO CITY

perception of convenience to Chinese travelers is so important,” McCartney said. The all important issue of location is seen as one of the reasons for a slow ramp up at Melco Crown Entertainment’s Hollywood-themed Studio City, due to its position at the far end of the Cotai strip next to the Lotus Bridge immigration point. The resort is expected to benefit once

neighboring Hengqin Island is built out and a planned rapid transit rail station is built, but at present it is not viewed as convenient. Location, location, location Connectivity and positioning of resorts on the Cotai strip is likely to be key to the speed of the ramp up of the properties and its importance may have been underestimated, CLSA said in a recent research note. The firm noted that foot traffic was strong at The Parisian Macao, compared with Wynn Palace. The Parisian Macao reportedly has about 45,000 visitors a day, compared with 15,000 at Wynn. “While it can be argued that a premium product is naturally going to see lower visitation, we feel that there will be a material impact on ramp up speed,” the note said. “We have underappreciated the location of these properties and, perhaps more importantly, the connectivity to other resorts. This should have been obvious after we saw the challenges of Studio City,” it said. Although, the market does appear to have stabilized, analysts are warning that the risk of cannibalization from existing properties may have been underestimated. “When fully ramped in 2018, we estimate that Parisian will generate over one-fifth of profitability at Sands China and have an ROI of over 20 percent of the nearly US$3bn development cost. However, Parisian will cannibalize legacy properties (higher than we originally had expected); although the integrated resort will be net additive to Sands’ profitability,” Bernstein Research said. There are also signs that the increased supply in the market may be driving down room rates, although occupancy remains strong.

Exclusion requests gain Macau’s gaming regulator received a total of 258 requests for exclusions in the first nine months of 2016, according to data from DICJ. A total of 240 individuals requested to be added to the exclusion list, while 18 were submitted by third parties. The gaming hub has seen a steady increase of individuals requesting for exclusion each year, from 252 in 2013, to 328 in 2015, according to data.

Asia Gaming Briefings | November 2016


AGBriefings November 2016