Fitch Ratings still confident in Macau; Deutsche Bank is not

Fitch Ratings still confident in Macau; Deutsche Bank is not

Fitch Ratings still confident in Macau; Deutsche Bank is notGlobal ratings agency Fitch Ratings is still optimistic about Macau’s long-term business, saying that things should pick up in the second half of the year.

“While the recent operating declines are concerning we are encouraged by the fact that the long-term fundamentals for the higher-margin, lower-volatility mass business remain intact,” the analysts said.

The agency projects Macau’s gaming revenue to slide by 4% in 2015, a figure that it says would represent “mild sequential improvement through the first half of 2015 relative to the last quarter of 2014.” Gaming revenues would also be aided by the opening of Galaxy Macau and Studio City’s expansion projects this year.

Fitch added that while dividends may have to be cut as a result of stagnating revenue, it remains hopeful that the six casino operators are all in good enough financial position to withstand the lower numbers.

It’s an admittedly glass-half-full outlook at Macau’s fortunes, something that isn’t being shared by other financial institutions. Deutsche Bank predicted that gross gambling revenue in Macau would sink 30% in 2015, a staggering forecast that has blown its initial 13% forecast completely out of the water.

Deutsche Bank analyst Karen Tang expressed skepticism that the opening of the two new resorts would do much to stem the tide or increase the gambling town’s visitation numbers. Tang believes that the market is still “underestimating the pressure on casino operator margins,” adding that the decline in revenue could leak into 2016.

The opening of new resorts in other Asian countries has had a huge effect on Macau’s revenue as high rollers and VIPs eschew their usual betting grounds in favor of friendlier financial environments. Even Macau’s typically robust junket business has contracted, struggling to recruit new gamblers and not getting enough action from their existing clients.

Deutsche Bank cut five casinos from hold to sell while maintaining its sell rating on SJM Holdings Ltd. shares. That forecast triggered a new round of selling, with all six casino operators experiencing declines in share value.

Melco Crown was the hardest hit, losing 6% in the Hong Kong Stock Exchange and 3% on the Nasdaq. MGM China lost 5% in Hong Kong and close to 4% on the Nasdaq. Galaxy Entertainment, Sands China, and SJM Holdings reported losses of 4.7%, 3.7%, and 3.2%, respectively.