Had the three Japanese IRs already been open for business, the scare over the spread of the Wuhan Coronavirus would have been very bad news for the industry, and Japanese gaming industry executives would now deal with most of the same difficulties facing Macau, Singapore, and the rest of Asia.
Macau’s Chinese New Year visitation figures make for a pessimistic spectacle, though many analysts say the underlying demand remains strong and a snap back is likely to occur once the Coronavirus crisis is easing.
As of Thursday, 170 people had been killed by the Wuhan Coronavirus, with almost 8000 confirmed cases. Worldwide infections were reported, with the Philippines confirming its first outbreak on Thursday. Japan, Thailand, Cambodia, Malaysia, Singapore, South Korea and Australia have reported illness among the regional nations.
The Macau government cancelled all Chinese New Year celebrations in an effort to curb the spread, and extended the closure of government services for another two days. Chinese inbound package tours were cancelled, while the individual visa system, under which the most important of the clients of the casinos travel, was also halted. According to witnesses all but abandoned are stores, restaurants, and casino floors.
Over the Chinese New Year, Mainland Chinese visitors to Macau were down 90 percent over the previous year. While Macau Chief Executive Ho Iat Seng warned last week that casinos may need to be closed in case the situation worsens.
“The cancellations and dramatically reduced visitation point to a dreadful outcome for Chinese New Year in Macau and we would expect material year-on-year declines in January and February,” Bernstein Research wrote in a note, adding results for the first quarter of 2020 will most certainly be weaker than originally envisaged.
Bernstein points out that the seventeen days surrounding the lunar holiday have accounted for about 5.5 percent of the annual gross gambling revenue over the past three years, with January and February together representing about 16 to 17 percent of the year’s tally.
On Wednesday, Sands China announced its 2019 Q4 results with executives becoming the first of six operators in Macau to comment on the effects of the virus.
Sheldon Adelson, chairman and chief executive, told investors: “The current situation is unique and serious. Our top priority is the health and safety of our employees and guests, and we are doing everything we can to support the government, both in Macau and China.”
Chairman and Chief Operating Officer Robert Goldstein said the virus had an impact on all business areas and noted that the ability to adjust fixed costs to mitigate revenue slowdown was minimal.
Analysts point out that Sands had seen a strong start to the year, with the prospect of a China-US trade deal removing one of 2019’s key drags. As a result, Jefferies said Sands management has suggested strong underlying demand.
“With the focus on 2020, visitations will remain weak with management unclear ‘when storm will end,’” it said in a note. “Management highlight trade deal phase 1 is positive with a phase 2 deal possible and believe there is pent-up demand,” it said, adding that the virus will remain a headwind until the outbreak is controlled.
The virus hasn’t yet had the same dramatic impact elsewhere in Asia as it did in Macau, but analysts are trying to assess the damage.
Sands China acknowledged that it had impacted operations at its Marina Bay Sands property in Singapore, although nowhere near the same level as in Macau.
Maybank analyst Samuel Yin Shao Yang pointed out that the H1N1 virus that hit Asia from April 2009 to August 2010 and the May to July 2015 outbreak of Middle Eastern Respiratory Syndrome had no significant impact in Singapore and Malaysia. Though the 2002 to 2003 SARS pandemic did.
“Unfortunately, we opine that the Wuhan pandemic resembles the SARS one. The Wuhan pandemic’s epicentre is also China and while not as lethal, is more contagious than the SARS pandemic,” he wrote.
Nevertheless, he encouraged investors not to be too averse to casinos in this region as the governments in Beijing launched the individual visa scheme during the SARS epidemic, while the Malaysian government was considering investigating casino duties for Resorts World Genting.
“There could be upside for GENM, GENT and GENS if the Malaysian government rolls back some of the 10ppt casino duty rate hike and/or the Singapore government rolls back some of the 50 percent casino entry levy hike during this Wuhan pandemic,” he said, referring to the punitive tax increases levied in Malaysia’s 2018 budget and the rise in entry fees for Singapore’s locals.
In Australia, J.P. Morgan says the Coronavirus would create a “less buoyant” Chinese tourism climate that has already been slowing. To date, tourism arrivals have risen by only 3.6 percent in fiscal 2020, with China rising 2.6 percent in July through October. Chinese tourists make up about a third of the country’s arrivals.
“Chinese tourists are the highest paying, segments of foreign visitors,” it says. “Casinos offer block rooms to draw in Asian tour groups, and EGMs have introduced games that target the Chinese casino-goer.”
Any Coronavirus fallout will add to Australia’s already weak tourism outlook because of the bushfires that have raged across the country.
The Philippines, once again in 2019 one of Asia’s fastest growing markets, is also calling for a possible downturn in tourism, with the recent eruption of the Taal Volcano near Manila also likely to discourage visitation.
“Lower tourist arrivals as a result of the virus scare will likely slow a steady and burgeoning source of foreign exchange, although some tourists utilise payment apps and other forms of electronic payments to transact in the Philippines,” ING Philippines economist Nicholas Mapa wrote in a note. “Meanwhile, the more likely and direct impact on the economy will be on the consumption front as global travel is expected to slow altogether.”
The Philippines has an advantage over some of its regional rivals in terms of its gaming industry, such as Malaysia, Vietnam, and Cambodia, in that locals are able to play in casinos, offering a degree of local support.
As for Japan, it’s also certain that the inbound tourism industry will suffer negative effects. Perhaps the most important lesson for future IR, though, is to expect the unexpected. Sometimes even perfect plans can run off the rails, at least for a while.