The role of so-called “channel checks” in forecasting the monthly performance of the Macau casino industry’s gross gaming revenue (GGR) has been called into question by several brokerages following a big miss on June GGR year-on-year growth compared to some estimates.
Macau’s June GGR rose by 12.5 percent year-on-year, to approximately MOP22.49 billion (US$2.81 billion), according to data from the city’s regulator, the Gaming Inspection and Coordination Bureau, released on Sunday. Up until last week, the investment community had been expecting year-on-year expansion of circa 20 percent.
“Channel checks” – also sometimes referred to as “consultant checks” – are understood to be unofficial returns from the industry, collated typically on a weekly basis, ahead of the official monthly GGR number from the gaming regulator. Some brokerages have told GGRAsia they do not rely on such data because of concerns that their institution could be exposed to litigation if investors buy or sell stock on the strength of such unofficial numbers and they turn out to be inaccurate.
“In hindsight, we can’t help but question the credibility of these weekly data,” said analysts DS Kim and Sean Zhuang of JP Morgan Securities (Asia Pacific) Ltd in a Monday note.
They added: “The miss was partly driven by elevated estimates, as the Street had hastily revised up numbers during the month (from +13 percent to 15 percent to +18 percent), reflecting upbeat channel checks from industry consultants.”
Analysts at brokerage Sanford C. Bernstein Ltd said in a Sunday note they were “sceptical” about the “weekly channel checks”.
“In May, the downward surprise was similarly pronounced,” wrote Vitaly Umansky, Zhen Gong and Kelsey Zhu, referring to industry estimates for GGR versus the official numbers.
“Assuming the accuracy of the weekly channel checks, the implied average daily revenue for the last six days of June would have only been MOP466 million [US$57.7 million],” added the Sanford Bernstein team. In a memo on June 25, the institution had been expecting average daily revenue of MOP730 million to MOP750 million for the remaining days of the month.
“If not for checks (which were incorrect last month as well), expectations would not have exceeded our +12.0 percent estimate,” wrote Deutsche Bank Securities Inc analysts Carlo Santarelli and Danny Valoy, referring latterly to June GGR year-on-year expansion.
Bad final week
Analyst Grant Govertsen of Union Gaming Securities Asia ltd stated in a Sunday memo: “Business volumes across Macau decelerated notably in the last week of June: we’re surveying the market to see if there was a universal root cause, but at this point we’re not concerned.”
“Keep in mind that Macau has bad weeks all the time and one bad week doesn’t make a trend,” he added.
Union Gaming said likely factors in the missed estimate included: a tough year-on-year comparison with June 2017, when Macau GGR had expanded by nearly 26 percent; “bad luck” on VIP and premium mass play at certain Macau operators; a “small sliver of players” staying out of the Macau casino market during the 2018 FIFA World Cup, an international soccer tournament being held in Russia, that started on June 14; and absence of “market-growing benefit from the most recent supply”.
The latter point was understood to be reference to the recently-launched Morpheus hotel tower at City of Dreams Macau, a property promoted by Melco Resorts and Entertainment Ltd. The company’s management indicated that Morpheus’ full complement of more than 700 hotel rooms would only be coming into the market in stages during June and July.
The fact that Morpheus received no new-to-market gaming tables for this year from the Macau government – under the city’s table cap system – was not regarded by the investment community as a major issue, given that the operators have in recent years been managing their overhead costs conservatively and only opening some of their existing tables at the times of highest demand.
Union Gaming stated regarding Macau market GGR as a whole: “For the full year 2018, we are now forecasting +16 percent growth, which is 100 basis points lower than our previous forecast of +17 percent.”
The brokerage added: “Our full year forecast can be achieved via average monthly GGR of MOP26.2 billion (+4.8 percent relative to the year-to-date average of MOP25.0 billion and notably lower than the typical second-half versus first-half trends).”
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