Deutsche Bank: New openings to test supply & demand theory

Last Wednesday, Sheldon Adelson, the Chairman of Las Vegas Sands, which controls Sands China, said in a press conference in New York that “supply will create the demand” and for many years this has been the view of the market concerning the Macau gaming industry.
Now, as the second wave of casino openings gets under way in Cotai – with Galaxy Macau Phase II and Broadway at Galaxy Macau, and Melco Crown’s Studio City project expected to open during the third quarter of the year – the time has come to prove the validity of ‘build and they will come’. At least, this is the view shared by the Head of Asia Gaming and Hotels Research at Deutsche Bank, Karen Tang, in a research note from the German institution titled ‘Can supply Create Demand?’.
“Yesterday [Wednesday] marked the start of a new era where 6 big properties would open in the next 2-3 years. The market believes in ‘supply creates demand’ and consensus still forecasts a Macau recovery in 2016 with gaming revenues up 10 per cent year-on-year. If the first two openings fail to stimulate demand by year -end, consensus would see another major cut”, she said with regard to the consequences of the market failing to prove this theory.
According to the report, Galaxy Macau is expecting to increase the number of visitors from 40,000 per day to 70,000. However, the same report raises the question of the current business environment in Macau in the gaming industry which may affect the increasing of the number of visitors to the Galaxy property.

VIP giving way to mass
Apropos the new Galaxy Entertainment Group property, Tang said that the number of gaming promoters operating in Phase II is disappointing despite the company’s strong junket network.
“We are rather disappointed that only 3 junkets (Suncity, Tak Chun & AG) opened rooms in Phase II, considering Galaxy has such wide junket network”, she said. “More importantly, most junket agents we spoke to didn’t seem too excited about this new casino, and said they would rather take VIPs overseas to the new casinos in Manila, Vietnam and Australia”.
However, it is worth noting that the gaming industry, and primarily Cotai’s new casinos, are intended to be mainly mass-market oriented. As Sheldon Adelson also explained at Wednesday’s press conference, as quoted by the American website Business Insider, the goal is to transform Macau into a “shopping city”.
Karen Tang also praised the two new properties for being well designed for efficiency and customer flow”, but noted that as Phase II is too similar to Phase 1 the “wow” factor is missing.