China stimulus could help buoy Macau gaming

Will First-Quarter Growth in China’s GDP Revitalize Consumer Spending in Macau? Addressing Flatlining GGR in the Gaming Hub Amidst Potential Budget Deficits.

In the first quarter of 2024, Macau’s casinos reported a gross gaming revenue (GGR) of MOP57.65 billion (approximately £5.4 billion/€6.3 billion/$7.21 billion), reflecting a modest year-on-year growth of 0.86%. Notably, nearly 60% of this revenue came from the mass-market baccarat segment, as indicated by the Gaming Inspection and Coordination Bureau of Macau.

While mass-market baccarat experienced a decline of 0.76% year-on-year, it has shown resilience, growing nearly 15% compared to the same period in 2019. Conversely, the VIP baccarat segment generated MOP14.45 billion, which represents a slight increase of 0.54% from the previous year but reveals a significant 61% decrease compared to 2019 levels.

During a legislative assembly meeting on April 14, Macau’s Chief Executive Sam Hou Fai expressed concerns that this year’s GGR may fall short of the government’s ambitious target of MOP240 billion—which necessitates an average of MOP19.2 billion in GGR per month. Should revenues dip below this threshold, Macau risks facing a budget deficit, according to Fai’s remarks.

However, there is a silver lining. Should China’s stimulus efforts yield the anticipated results, it is expected that tourists may be more inclined to increase their spending while visiting Macau. A report by China Daily on April 18 highlighted that China’s economy expanded by 5.4% in the first quarter, surpassing the projected growth rate of 5.2%.

Morgan Stanley strategist Xu Changtai characterized this first-quarter GDP growth as a “modestly positive indicator” of sustained economic momentum.

The Shift from VIP to Mass-Market Gaming

The ongoing transition towards mass-market gaming underscores a fundamental shift in the landscape of Macau’s gaming industry. In recent years, the Chinese government has intensified its crackdown on capital flight, illicit money exchanges, and the operating practices of junket operators, severely impacting the once-dominant VIP segment.

Historically, junket operators—who facilitated transportation, accommodations, and gaming credit for high rollers— accounted for approximately 60% of GGR in Macau. However, the downfall of two prominent figures in the industry, who faced charges related to illegal gambling and fraud, marked a turning point for the junket business.

In 2023, Alvin Chau, the leader of Suncity, was sentenced to 18 years in prison, followed shortly after by the conviction of Tak Chun’s founder, Levo Chan, who received a 14-year sentence. These judicial outcomes led many VIP patrons to withdraw from the circuit, reinforcing the pivot towards mass and premium mass gaming in Macau. Since 2014, the number of active junket operators in the city plummeted from 235 to a mere 24.

Anticipating Growth Acceleration in Q2

Analysts from CSLA, Jeffrey Kiang and Leo Pan, have linked the recent revenue slump to currency fluctuations and escalating US-China trade tensions, projecting GGR growth of only 1.8% for the year, culminating in MOP230.8 billion.

“While we foresee minimal growth in 2025, we expect to see a marked acceleration in 2026 as property prices in China are anticipated to stabilize in the second half of 2025, fundamentally bolstering consumer confidence,” they noted. Furthermore, they predict that tourism to Macau will expand by 2.6% in both 2025 and 2026, and by 4.6% in 2027.

Seaport Research analyst Vitaly Umansky advises investors in the casino sector to prepare for improvements in the second quarter of 2025 and beyond, particularly in light of increasing concerns around economic slowdowns in Asia related to policy changes and potential recessions in the United States.

Despite cautioning that “gaming stocks remain intrinsically undervalued, especially those based in Macau,” Umansky added, “We acknowledge that growth has stagnated, leading us to revise our growth projections for 2025 downward. Nonetheless, we anticipate a resurgence in the latter half of the year and now forecast GGR growth of 3% in what remains the world’s preeminent gaming market.”

This outlook reflects a blend of cautious optimism as Macau’s gaming industry searches for stability and growth amid changing economic dynamos.