Sanford C. Bernstein Ltd says a trend of slowing of growth in gross gaming revenue (GGR) in Macau is clear and the brokerage has reduced the target prices for stocks of four casino operators there.
“Since early 2018, we had been raising caution that Macau GGR growth would decelerate in the second half of 2018 and further in 2019,” the brokerage stated in a note issued on Thursday.
“The recent sell-off in the sector has been largely due to investor concerns over decelerating growth, [the] Chinese economy, escalation of U.S.-China trade issues and potential policy risks. Over the short to medium term, these drivers will likely create headwinds for GGR growth, leading to continued deceleration in growth. These short-to-medium-term concerns will continue to weigh on stocks and likely lead to significant price volatility,” the memo stated.
Hong Kong-based analysts Vitaly Umansky, Zhen Gong and Kelsey Zhu added the brokerage had reduced its target price for shares in Wynn Macau Ltd to HKD$28.50 (US$3.65) from HKD30.00, with an “outperform” rating; in Galaxy Entertainment Group Ltd to HKD62.75 from HKD72.00, with a “market perform” rating; in MGM China Holdings Ltd to HKD16.25 from HKD20, with a “market perform” rating; and in Sands China Ltd to HKD42 from HKD46, with a “market perform” rating.
The brokerage’s target price reductions are largely based on lower valuation multiples.
The institution is keeping its target price for Melco Resorts and Entertainment Ltd stock at US$27.00, with an “outperform” rating; and for SJM Holdings Ltd stock at HKD7.60 with an “underperform” rating.
The brokerage suggested the short-term fluctuation in share prices had “potentially created buying opportunities for long-term investors who can stomach volatility”.
Its analysts said their research suggests industry-wide EBITDA (earnings before interest, taxation, depreciation and amortisation) for the third quarter to be about 85 percent of the peak result in Q1 2014.
“While the slowdown in GGR growth is evident, we still have a positive outlook on the Macau gaming industry in the long run,” the memo stated. Sanford Bernstein added it had an especially positive outlook on the mass market for gaming in Macau, and on the premium-mass market in particular.
“Improvements in transportation and new property openings support long-term growth in [the] mass [market] where the long-term demand is clear,” its note says.
It was reported in Hong Kong media on Wednesday – citing unidentified sources – that the Hong Kong-Zhuhai-Macau Bridge – providing for the first time a direct-line road link between the major international transport hub of Hong Kong International Airport and Macau across the Pearl River Delta – would open next month.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China