Chinese Casino Revenues Down

Publish: 12.11.2018

The impact of a slowing economy has finally started showing on Macau, the gambling capital of the world. The latest news of eventual doom comes from Wynn Resorts which is predicting a massive fall in revenue. The Wall Street is considering the casino giant’s estimates conservatives, but mainland China’s economic impact will come to haunt the gambling capital sooner than later.

The reported earnings of Wynn Resorts caught Wall Street’s attention on Wednesday. The third quarter earnings of the casino company went by $200 million quarter-on-quarter. However, the resort’s Q4 revenue estimates are 20% below Wall Street’s expectations. Analyst Cameron McKnight from Credit Suisse suggests that the online casinos and gambling market could be negative over the last two months of 2018.

October’s Golden Week was relatively strong for the casino operator, but their business has dropped significantly since. McKnight noted that the casino revenues have remained volatile in Macau but said that Wynn did not talk about losing shares. This means that either it is adopting a very conservative approach for revenues or that markets have turned highly negative in both November and December. The report led to a 12% loss in Wynn’s stock prices on Thursday.

A majority of Wynn’s revenue comes from its two casinos in Macau, making it the most susceptible to fall if the Chinese economy slows down and creates a situation like 2014 and 2015 when casino revenues halved. The Wall Street, including Deutsche Bank’s Carlo Santarelli is convinced that Wynn is conservative.

However, this stance by the gambling giant is based on macro data. According to McKnight, gaming revenue typical lags credit cycles on the mainland by 15 months. The Chinese government slowed down the credit flow last year, which means that results should be visible in Macau by the fourth quarter of the year.

Another indicator of Macau’s slow growth is the Chinese housing market. A lag in housing prices is reflected in Macau by eight months, which again points to a slower Q4. The S&P has already floated a warning to weaker property developers in the mainland, saying that they are in danger of default. In September, housing sales declined by 3.6%. A whopping 22% of Chinese homes remain unoccupied, pointing to a weak housing market.

All economic indicators suggest that Macau is going to have a tough time for the next few months.