(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 and Las Vegas Sands 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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(Editing by Robyn Mak and Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))
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