The Japan-based brokerage firm Nomura has considerably narrowed the forecast return rates on invested capital (ROIC) for the Cotai casino resorts, which are yet to be established in Macau.
Under the lead of Mr. Harry Curtis, several analysts of Nomura, based in the U.S., shared in a note that a range from 40 to 50% “lower table allocations for the new resorts” is expected by them due to the fact that Beijing is seeking an expansion of Macau’s revenues generated from gaming.
The analysts also explained that three months earlier their ROIC projection was narrowed down from the range of between 30-35% to about 25%. Now they believe that a 15% ROIC is more likely to be posted, taking into account the fact there is a smaller number of tables and the gross gaming revenue (GGR) is lower than initially expected.
In addition, according to a statement of Nomura, a small part of the accumulative earnings before EBITDA were assigned to non-casino facilities.
For the time being, there are six operators eligible for providing gambling services on the territory of Macau. All of them have been following a strategy of making large investments into new projects in Cotai, which are expected to open in the period 2015-2017.
The two grand openings, which are supposed to happen in Macau in 2015 are the ones of Galaxy Macau Phase 2 of Galaxy Entertainment Group Ltd and Studio City, which is mainly controlled by Melco Crown Entertainment Ltd. A total of about $5.7 billion in capital expenditures are involved in the two projects.
According to the analysts of Nomura, project “extensions” such as Galaxy, “warrant minimal incremental gaming capacity”. They also shared their conclusion that both Beijing and Macau are striving towards a success of the new projects without minding the lower ROIC.
According to Nomura’s analysts’ both governments want the projects to be successful, but only in case operators agree to follow the visitation and money flow regulatory rules in the region.
Now, the analysts from the Japan-based brokerage firm are starting to consider that the projects of Sands China Ltd, MGM China Holdings Ltd and Wynn Macau Ltd in Cotai will be granted 200, 250 and 300 tables, respectively. According to their projections, these tables are equal to a range of between 40% and 50% below the allocation they were hoping for.
But that was not all. In addition, Nomura also sharply cut its forecast for Macau’s annual 2015 GGR growth in an official report and revealed its expectations of a year-on-year decline amounting to 18.2% after taking into account the openings of the two new projects.
