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Gaming Stocks in Focus as Macau September Revenues Fall

Gross gaming revenues in Macau plunged 33% to 17.1 billion patacas or $2.15 billion for the month of September per Gaming Inspection and Coordination Bureau. The decline was hardly a surprise and came in line with analysts' expectations. The current decline marks the 16th consecutive monthly decline and the thirteenth consecutive double-digit decline.

The reason for the decline more or less remains the same. The anti-graft corruption campaign has been keeping gamblers at bay more than a year now. As part of the crackdown on corruption in China, Macau officials have imposed strict restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

Also, high-stake gamblers are curtailing spending amid a cooling Chinese economy. Moreover, tighter restrictions on visas and the partial smoking ban in casinos have also been hurting numbers. One other possible reason for the September decline was the recently reported theft at a large junket group, Dore Entertainment, which operates at Wynn Resorts Ltd.'s WYNN Wynn Macau casino. The incident might have led to reduced lending.

For the first nine months of 2015, revenues declined 36.2% in the region. Macau, the only region in China where casinos are legal is a key operating region for leading casino operators like Wynn Resorts, Las Vegas Sands Corp. LVS and Melco Crown Entertainment Limited MPEL . Hence, share price of these companies fell in yesterday's trading. Though shares of MGM Resorts International MGM , another casino operator in Macau, went up in yesterday's trading, it has plunged approximately 11% over the past nine months.

Going Forward

There seems to be no end to the challenges faced by the gambling industry. While on the one hand, Neptune Group, a junket operator's shareholder, is reportedly facing money laundering charges, on the other hand, authorities are already investigating the reported theft at Dore Entertainment. This could result in stricter regulations for junket operators.

Meanwhile, Neptune Group might cut back on its business and lower its operations in the region if the situation in the gambling industry does not improve. Neptune is a loan facilitator for VIP gamblers and close of its operations will leave less cash for people who come to try their fortunes. (Read more: Macau Junket Plans to Trim Operations, Casino Stocks Fall )

Also, the devaluation of the yuan would contract Macau's gambling revenues by making it more expensive for Chinese gamblers to place their bets. Chinese visitors account for more than 60% of Macau's traffic. A weaker yuan would make it more expensive for Chinese gamers to place their bets. In fact, owing to some of these issues Fitch Ratings recently lowered its Macau gaming revenue forecasts for 2015. The firm now expects gaming revenues to decline in the range of 33% to 34% this year compared with the previous expectation of a decline of 29%. (Read More: Casino Stocks Fall as Fitch Cuts 2015 Macau Revenue View )

Is There a Respite for the Operators?

Per media reports, the government is seeking ways to boost tourism in the region to offset the negative impact to some extent. In one other move, the government would reportedly allow smoking in Macau casinos if the operators can scientifically prove that the smoking rooms can protect its employees as well as guests from the harmful tobacco smoke. The easing of the smoking ban in casinos might provide some relief from the ongoing decline in revenues. Meanwhile, per a new system implemented by the government from Jul 1, if travelers holding mainland China passports use Macau as a transit to other destinations, they are eligible to stay for seven days in Macau, up from five days permitted earlier. Both these steps are expected to improve visitation pattern in the region.

Also, China's leaders have lately urged Macau to convert itself into a diversified entertainment hub. Given the current scenario, they believe that it would be wise for Macau gaming companies to move toward non-gaming activities. They are of the opinion that the region has huge potential beyond gaming and are hopeful that if the operators try to cash in on the opportunities, a lot could be done to salvage the situation.

Analysts are pinning their hopes on the Golden Week that began on Oct 1 and believe that revenues in this period would indicate how things are going to unfold in the coming days.

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LAS VEGAS SANDS (LVS): Free Stock Analysis Report

WYNN RESRTS LTD (WYNN): Free Stock Analysis Report

MGM RESORTS INT (MGM): Free Stock Analysis Report

MELCO CROWN ENT (MPEL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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