Ho hum. The July gross gaming revenues in Macau were up again at another record level. The numbers surpassed expectations, even though July is the height of holiday season in China. For only the second time, revenues of MOP24.2 billion surpassed US billion (May 2011 also hit the billion mark).
But it was the shuffling in the order of market share that was the real story in July. While perennial leader SJM with its overwhelming number of casinos continued to lead the pack, its share of revenues has been dropping steadily for the past two months, from when it held a 32 percent share in May to July where it had decreased to 28 percent.
With the opening of Galaxy Macau, its first Cotai Strip resort, Galaxy Entertainment rose to second place at 19 percent. Melco Crown jumped to third place at 16 percent, followed by Wynn Macau (15 percent), Sands China (14 percent) and MGM Macau (8 percent). Galaxy’s market share has quadrupled over the past two years and jumped from last place to second. Sands China fell from its traditional second-place finish all the way to fourth.
July revenues in Macau were up 48.4 percent over the same month in 2010. Union Gaming Group speculated that a high-speed train accident in China had caused some vacationers to change their plans and travel instead to Macau.
The strong showing in July caused analysts to revisit their predictions for total 2011 revenue. RBS analyst Philip Tulk raised his outlook by 6 percent, which would result in revenues of US$34.1 billion. Union Gaming predicted MOP263 billion (US$32.8 billion), which would multiply the Las Vegas Strip estimates of $6 billion by 5.5 times.
Gary Pinge, senior vice president of gaming and consumer research for Macquarie Securities, says the rapid market share rise for Galaxy is a good thing.
“Galaxy Entertainment has taken time to understand its customer base and market segment well over the last five years,” he says. “This is what has allowed it to see such a fast ramp-up of its product, particularly on the VIP side.”
More impressive, says Pinge, has been the ability of Galaxy to maintain a high level of business at its original casino resort, StarWorld, in Macau’s Peninsula region.
“StarWorld’s performance has remained solid post the Cotai opening,” Pinge explains. “This can be attributed to the fact that Galaxy manages its properties as a group, rather than a silo. Hence, similar to what Harrah’s used to do, Galaxy managed the yield of its customer by moving it to different properties rather than forcing one property to compete against another. This strategy is not a coincidence and was most likely introduced by Galaxy’s CFO, Bob Drake, who previously was at Harrah’s in the U.S.”
The July revenue increase in Macau comes despite a rise in interest rates in China for the fifth time in the last nine months, including some local moves to cool the superheated gaming growth.
In a note to investors, JP Morgan analyst Kenneth Fong wrote that the July revenue report “proves industry momentum is very strong and dismisses concern that a tighter China credit market may have slowed VIP revenue growth.”
In fact, the VIP market has grown by 50 percent to 55 percent during the year. Total casino revenues in Macau were up 46.2 percent for the first seven months.
At the same time, non-gaming amenities continue to grow, even though they make up less than 7 percent of the total revenue for Macau casinos. Along with Galaxy Macau’s 2,000 rooms, an additional 6,000 will be added when the Sands Cotai Central—parcels 5 and 6 on the Cotai Strip—will allow the city’s integrated resorts to extend the average stay of 1.5 days.
And when you add the retail, dining and entertainment that continues to expand in Macau, the state government goal of increasing non-gaming tourism in Macau is well on its way to fruition.