Experts anticipate moderate adjustments in Macau's market landscape, despite a significant increase in gaming revenues.
In the bustling city of Macau, the upcoming Lunar New Year holidays from 28 January to 4 February are traditionally a time of significant boost for the gaming sector. However, JP Morgan analysts predict that this year may not deliver meaningful change, as hotel bookings show almost full capacity but are not expected to significantly impact the games market.
The Macau gaming market has been a key contributor to the city's economy, accounting for approximately 80% of its tax revenue. Despite a 20-quarter high in Q4 2024, with a 6% year-on-year and 3% quarter-on-quarter increase in gross games revenue, the sector has been tempered by macroeconomic headwinds.
JP Morgan analysts, including DS Kim, Mufan Shi, and Selina Li, have labelled Macau operators as "show me" stocks, emphasizing the need for clear and meaningful catalysts to restore investor confidence. The analysts have reported these findings in their latest report on the Macau gaming sector.
Amidst this uncertainty, the government of Macau is focused on long-term diversification plans to reduce the city's dependence on gamestop. The goal is to increase nongaming contributions to Macau's GDP from 50% pre-pandemic to 60%. This will be achieved through enhanced collaboration with the tourism and entertainment industries, promoting diversified tourism experiences beyond games, such as cultural events, entertainment shows, and family-friendly attractions.
The success of these diversification plans requires substantial collaboration between the government and the hospitality sector. A newly established nine-member committee will drive these efforts, with the aim of increasing Macau's appeal beyond its gamestop.
In the gaming sector, MGM China retains its leadership position, expected to beat its mid-teens basis points share quarter-on-quarter growth. Galaxy Entertainment follows closely behind, also recording a stable basis points increase. However, Sands China and SJM have demonstrated somewhat lacking metrics due to ongoing disruptions in the Macau games market. Wynn Macau and Melco remained relatively stable.
Despite the recent increase in revenue, investor skepticism and apprehension remain prevalent in the Macau gaming sector. Analysts are cautious about a potential stock rally in Macau due to increasing attractiveness of markets like the Philippines and Singapore. The newest revenue surge in Macau has received a lukewarm reception from investors.
The government's long-term focus on diversification may be more conducive to sustained growth. If successful, these efforts could shift Macau towards a more balanced economy, reducing its reliance on games and increasing contributions from tourism, leisure, and entertainment. This could potentially attract a broader range of visitors and bring about a more sustainable future for the city.
