Lady luck to smile down on Macau casinos this summer

TAGs: Karen Tang, Leonard Postrado, Macau, Vitaly Umansky

After months of having a bearish outlook, analysts are suddenly feeling optimistic about Macau’s casino stocks over the near term.

Lady luck to smile down on Macau casinos this summerFinancial news website Barron’s Asia reported that analysts are expecting Macau casino stocks to see a summer rally after its prices have fallen 17 percent from their spring highs.

In June, Macau’s gross gaming revenue plunges 8.5% to MOP15.88 billion (US$1.99 billion) – the lowest monthly tally of China’s premier gaming hub since September 2010, when the aggregate for such revenue was MOP15.30 billion [US$ 1.91 billion].

But the story of Macau’s casino will be different and more positive this month compared in June, according to the analysts.

The recent announcement of newly-installed Philippine President Rodrigo Duterte that he will revoke online gambling licenses in the island nation of Southeast Asia during his first cabinet meeting is adding fuel to the analyst’s optimism over a summer rally in Macau casino stocks.

Vitaly Umansky, an analyst from Sanford C. Bernstein, said that most offline casinos in Macau will benefit from Duterte’s decision to ban online gambling.

“The latest scrutiny could be a net positive for Macau casinos as these websites have previously targeted gamblers in China. More importantly, it is unclear if any new government regulation or legislation could also target proxy betting in the form of online video streams occurring in junket rooms within Philippine casinos. Based on our channel checks, Philippine junkets can generally receive a higher commission rate for such gaming activities, in the range of 1.3-2.1% of rolling chips,” Umansky said in a research note to Barron’s Asia.

Analysts also believe that the better-than-expected gross gaming revenue decline will also lift the casino sector, which has already been priced in. According to the estimates of Deutsche Bank, Macau casino stocks are now trading at 11 times 2017 earnings – which is near the low end of the historical range of 10-14 times.

Karen Tang of Deutsche Bank AG in Hong Kong cited several catalysts that could improve market sentiment, including the anticipated opening of Wynn Palace and the Parisian and that the second quarter 2016 results of the operators.

She quickly clarified that the analysis should not be taken as a sign of a cyclical recovery.

“Since peaking in late March, Macau stock prices have fallen 17 percent as the sector entered a slow season in the second quarter of 2016 with gross gaming revenue (GGR) down 8 percent quarter-on-quarter,” Ms Tang said in her research note. “In both of the last two years, Macau stocks had short-term summer rallies in July-August as GGR picked up over the summer holiday.”


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