Macau's festive blowout defies economic worries

By Katrina Hamlin

(The author is a Reuters Breakingviews columnist.)

HONG KONG, Feb 27 (Reuters Breakingviews) - The year of the pig has brought early good fortune to Macau. The mood was grim at the end of last year, thanks to a disappointing third quarter and the prospect of a long, ugly trade war. But the $38 billion gambling hub has proven more resilient than many feared.

It wasn't just holiday cheer: in fact occupancy rates have hovered around 90 percent or higher for months. Fourth-quarter results from Melco Resorts and Entertainment and MGM China support optimism: both reported adjusted EBITDA up by double digits.

Such numbers might reassure those worried by other indicators. Chinese retail spending, for example, rose by just 8.5 percent during the new year break, the first single-digit figure since records began, according to Nomura - part of a broad, if selective, shopping slowdown.

Macau hasn't tracked trends in official data, however. The destination has managed to capitalise on a growing niche of middle-class mainland travellers looking for a mini-breaks closer to home. New infrastructure has contributed: the recently opened mega-bridge connecting the city with Hong Kong and Guangdong, plus a new highspeed train route, have made the trip more affordable and convenient.

A degree of caution is warranted. There is a softening at the higher end of the market, with VIP favourite Wynn reporting more sluggish growth than the rest. Meanwhile many of the newcomers are group tourists and day trippers who hesitate to spend big, or even to gamble. That's hardly the target audience: operators, aiming for an affluent crowd somewhere between the two extremes, have invested billions in premium facilities and services that sightseers won't use.

Even so, the six listed operators' shares are up by around a fifth on average, year to date. This is shaping up to be a happier new year than investors dared hope.

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- During the Chinese New Year holiday in early February, Macau saw a 26.6 percent jump in visitors compared with the previous year's festival period, according to data from the Macao Government Tourism Office. Arrivals hit a record 1.2 million persons over seven days, and hotels had an average occupancy rate of 97 percent.

- Melco Resorts and Entertainment's adjusted EBITDA grew by 25 percent to $425 million in the fourth quarter of 2018 compared to a year earlier, the group said in a filing on Feb. 19.

- MGM China's adjusted property EBITDA grew by 11 percent to $167 million during the same period, helped by growing business at its new property, MGM Cotai, the company reported on Feb. 14.

- Las Vegas Sands grew its Macau operations' adjusted property EBITDA by 7.7 percent to $786 million, according to a filing on Jan. 24.

- Wynn Resorts'Macau properties saw EBITDA grow by 5 percent from a year earlier to $394 million, based on Citi's analysis of the parent company's results released on Jan. 30.

-SJM Holdings and Galaxy Entertainment are expected to release results on Feb. 28.

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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