Deutsche Bank Maintains Optimistic Outlook for Macau Gaming Market in 2025

Deutsche Bank analysts Carlo Santarelli and Steven Pizzella have expressed a positive outlook for Macau's gaming market in 2025, despite ongoing geopolitical tensions and intensified competition. In a recent report, the brokerage predicted a 5.3 percent growth in Macau's gross gaming revenue (GGR) for 2025, slightly below the market consensus of 7.4 percent.

Geopolitical concerns, particularly surrounding US-China relations under the new Trump administration, continue to cast a shadow over the casino sector. However, Santarelli and Pizzella maintain that such factors will have minimal direct impact on Macau's underlying fundamentals, though they acknowledge that heightened sensitivity to these issues could influence investor sentiment.

The analysts drew comparisons to 2018, when US-China trade tariffs coincided with a challenging period for Macau stocks. They emphasized that the diminished role of the VIP market today reduces the relevance of such historical correlations. "One can surmise that the tariff implementations in 2018 had an impact on the VIP market in 2019, though, given the reduced importance of the VIP market today, and the confluence of other factors impacting the VIP market in 2019, we don’t believe this is a rational concern," the report stated.

Santarelli and Pizzella remain confident in Macau's long-term prospects, which are supported by a steady recovery in visitation and the ongoing expansion of the mass market. They anticipate further growth in GGR and consistent improvements in market fundamentals.

Nonetheless, the analysts acknowledged persistent concerns among investors regarding potential geopolitical disruptions and intense competition, which eroded profitability in 2024. “While the fundamental impediments that drove negative revisions in 2024 are accounted for in our forecasts, questions remain about whether GGR will drive stock performance in 2025,” the report noted.

Reflecting on Macau’s 2024 Performance

According to Deutsche Bank, Macau's 2024 performance represented a mix of recovery and underperformance. GGR increased by 23.9 percent year-on-year, aligning with market expectations, yet it remained 22.5 percent below 2019 pre-pandemic levels.

The mass gaming segment saw notable growth, with GGR rising approximately 25 percent year-on-year and surpassing 2019 levels by 10 percent. However, the VIP segment underperformed, showing a 21 percent year-on-year increase but still falling 60 percent short of 2019 figures.

Despite these gains, Macau casino stocks struggled in 2024. The Deutsche Bank analysts attributed this underperformance to reduced profit margins caused by intensified competition in the mass market and geopolitical uncertainties that negatively affected sentiment toward US-listed operators in Macau. “Mass competition intensified as the VIP segment contracted, and the flow-through on incremental mass GGR was weaker than expected,” the analysts explained.

A limited supply of hotel rooms also constrained Macau’s recovery. Ongoing renovation projects and a sparse development pipeline kept room supply growth muted, with 2024 ending with fewer rooms than the previous year. However, the average occupancy rate of Macau's 44,000 hotel rooms in the first three quarters of 2024 exceeded 85 percent, marking an almost 5 percent increase compared to the same period in 2023.

The analysts highlighted that room supply constraints create an opportunity for operators to maximize occupancy and revenue. “Year-end 2024 Macau market room supply will be lower Y/Y, with limited meaningful development on the horizon. As such, from a capacity perspective, with the exception of some rooms coming back online, some smaller scale new room openings, and the longer-term potential Galaxy Phase IV opening, the supply pipeline looks relatively healthy for harvesting existing, and presumably growing, demand,” the report noted.

Macau’s visitation in 2024 grew by 25 percent year-on-year but remained 12 percent below 2019 levels. A significant factor was the reduction in arrivals from mainland China, which were down 13 percent from 2019. However, notable improvements in visitation during the latter half of the year offer hope for sustained growth in 2025.

By fLEXI tEAM