Macau VIP revenue is dropping. This is causing a number of analysts to re-evaluate their position on the major casino operators and to revise their views of the operators’ futures. John DeCree of brokerage Union Gaming is one of these and he sees an even larger contraction coming for Macau than what many had previously expected. As a result, he trimmed expectations of the city’s US-based operators.
DeCree said in analysis this past Monday that there will be a contraction of 15% in Macau’s VIP revenue this year, compared to the previously-predicted 8%. Mass-market gaming will pick up, however, growing by about 10% over last year. Gross gaming revenue (GGR), due to the changes in the market, will shrink 2% instead of the growth of 1% that analysts had previously forecast.
This led DeCree to assert, We highlighted a confluence of factors driving our lower VIP forecast, including the threat from new regional APAC casinos, softer China macroeconomic trends resulting from US/China trade war, Macau’s VIP smoking ban, junket maturity, including the transition of mature junkets to principal roles, and local politics.” He added, “Collectively, these items paint a more cautious outlook for VIP over the coming quarters.”
The analyst has dropped his price estimates for Wynn Resorts, MGM International and Las Vegas Sands. Sands is now priced at $78, down from a previous $80. DeCree explains, “LVS has significant growth capital being deployed in high-return markets like Macau and Singapore and continues to be a cash flow machine, making a low-$60 entry price quite attractive for LVS today, especially for longer-term investors.”
Wynn’s price has dropped from $165 to $150. According to DeCree, “For WYNN, we do realize it will be difficult for the shares to work in a negative VIP environment, but at current levels, we believe this is priced in for the most part. Furthermore, WYNN’s management has been quite busy looking for ways to create value, including pursuing [Crown Resorts], raising its annual dividend, and potentially considering the sale of Encore Boston.”
MGM’s price forecast was dropped from $40 to $38, which DeCree asserts is “range bound” over the next two quarters. He added that MGM could be beneficial next year due to the company’s efforts to cut costs and states, “Our outlook for 2020 in Las Vegas remains favorable, with the triennial CON/AGG conference returning in 1Q20, coupled with easier comps for MGM, and the Raiders first season in Fall 2020.”
