Missing Chinese spenders deal Macau a losing hand

Sands China

20/08/2024 05:51

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, Aug 20 (Reuters Breakingviews) - China’s
travellers are seeking inexpensive thrills. That spells bad news
for Macau, where companies such as SJM Holdings  0880.HK  and
Las Vegas Sands  LVS.N  are betting heavily on middle-class
holidaymakers’ appetite for gambling, shopping, wining and
dining. 
    The gambling enclave has had a disappointing pandemic
recovery. In the first half of 2024, the number of arrivals was
almost on par with 2018. But visitors today are stingier: gaming
revenue in the year to July came in at 132 billion patacas
($16.5 billion) in January to July, versus 176 billion patacas
in the same period six years ago.
    That's largely due to changing tastes. Far-flung
destinations are out: in 2023, Chinese globetrotters tallied
some 87 million trips overseas, around two-fifths below 2019
levels, per Reuters. When they do venture out, they are less
inclined to splurge, too. On the other hand, domestic travel
volumes could outstrip 2019 levels this year, according to the
Economist Intelligence Unit.
    The risk is that these habits could become entrenched as the
world’s second-largest economy sputters. Even wealthier families
are now opting to stay in China, according to a May survey by
consultancy Oliver Wyman. Only 14% of high-income households
that travelled internationally last year planned to go abroad
this year. Respondents said they had plentiful local
alternatives and wanted to avoid costly itineraries.
    It’s tricky timing. President Xi Jinping's crackdown on
corruption and excess in sectors including finance had almost
wiped out high-rolling VIPs, who gambled vast sums on credit.
The casino operators were largely unscathed, as middle-income
punters became their main source of earnings. That makes the
current slowdown particularly painful: annual EBITDA growth at
the six companies is forecast to clock in at an average of less
than 10% in 2025 and 2026, down from 17% in 2018, per Visible
Alpha.
    To satisfy the terms of their recent license agreements,
they are also investing a combined $15 billion over the next ten
years in new facilities and non-gambling activities such as
concerts, art exhibitions and water parks. At the same time,
resorts on the sprawling Cotai Strip, Macau's answer to Las
Vegas, also offer free rooms, fancy meals and other goodies as
they vie to entice gamblers. 
    That's weighing heavily on valuations. The casino operators
are valued at roughly 9 times 2024 EBITDA on average per LSEG,
lower than pre-COVID when the figure for the sector was around
13-14 times, per JPMorgan. Investors appear to see Macau as a
Chinese territory with a losing hand.
    
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    CONTEXT NEWS
    Macau’s gross gambling revenue for the first seven months of
the year reached 132 billion pataca ($16.5 billion), according
to official data. That compared with 176 billion patacas in the
same period in 2018, the last year before protests in Hong Kong
and a global pandemic disrupted travel to the region.
    Visitor numbers in the first half of 2024 reached 16.8
million, compared with 16.7 million in 2018, according to
Macau’s Statistics and Census service.

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Graphic: Macau casinos revenue recovery drags on    https://reut.rs/3Me9dm4
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ katrina.hamlin@thomsonreuters.com; Reuters
Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))