Could A Smoking Ban Hurt Macau Casinos?

• In their latest Macau Weekly GGR, Bernstein analysts Vitaly Umansky and his team shared an update on the smoking ban, China’s weak TSF data and the new DICJ head.
• Below are a few highlights and conclusions from the report.

In their latest Macau Weekly GGR report, analysts at Bernstein highlighted a few key issued from the week of November 9 to November 15.

First off, they noted that Macau gaming ADR for last week reached MOP 557 million, 6 above the previous week's ADR of MOP 525 million. Assuming an ADR between MOP 570 million and MOP 600 million for what’s left of the month, November GGR would be MOP 16.7-17.1 billion, which would represent a year-over-year decline of roughly 30 percent.

The Smoking Ban

The experts then went into the smoking ban discussions between the Macau government and casinos, which continue to take place. Last week, the six casino concessionaires met with the Committee in charge of modifying the government’s smoking ban proposal. While the chairman of the committee had previously said that “it may take until June 2016 for the bill to return to the full Assembly (after a series of consultations and potential significant amendments to the original bill),” recent media reports indicated that the Committee might complete its work before the end of the year.

Analysts at Bernstein would estimate that “the process will take longer as the Macau government is going to be loath to make a decision while the gaming industry is still weak.”

They continued, “If a full smoking ban were implemented, it would have negative impact on GGR, as the current partial smoking ban has had negative impact on Mass GGR since October 2014. Based on experience in Australia, New Zealand, the UK and the US, the smoking bans that started implemented in those jurisdictions may have initially caused gaming revenues to fall up to 15%+,” they explicated. Nonetheless, they added, “these declines were typically driven by decreases in gaming by locals (who have the ability to frequently come and go from the casinos without limitations, unlike Macau where entry is tied to limited visa frequency).”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.