S&P cuts growth forecast for Macau casinos in 2015

HONG KONG - Gross gaming revenue is likely to continue to fall in Macau this year as the Chinese Government continues to stamp out corruption and further regulatory tightening in Macau takes effect, according to ratings agency Standard & Poor's. It expects gross gaming revenue in 2015 to decline by 5%-10%, compared with its previous expectation of 0%-5% positive growth.

"We believe Macau casinos will experience further short-term pain this year," said S&P credit analyst, Sophie Lin. "We have lowered our revenue forecast because of the significant impact of China's anti-corruption campaign and more stringent execution of regulatory controls on gaming activities in Macau than we previously anticipated."

Standard & Poor's now assumes that gross gaming revenue across the sector will drop by 15%-20% in the first half of 2015, comparable to a 16% decline in the previous six months. However, it expects revenue to grow by a mid-to-high single digit in the second half of 2015. This modest recovery comes off a low base, and factors in new gaming capacity and additional hotel rooms.

Nevertheless, S&P does not expect the slowdown of Macau's gaming
revenue growth to affect rating outlooks on Las Vegas Sands, Melco Crown (Macau) Ltd., or Studio City Co. Ltd.

The report says that a structural shift in revenue towards mass-market gaming and non-gaming activities (such as retail) and away from VIP gaming will benefit Macau over the long run. Increasingly diversified growth will make Macau's gaming industry more sustainable and resilient.

“The gaming industry still has ample room to grow, in our view, given robust growth in Chinese visitation numbers and high hotel occupancy rates,” says S&P. "We still view the long-term growth drivers for the gaming sector in Macau as good. Demand should remain firm, thanks to China's healthy economic growth and its growing middle-class.” www.standardandpoors.com (ATI).