New research from JP Morgan Securities (Asia Pacific) Ltd advises investors in Macau gaming stocks to stay calm in the face of a disappointing second quarter and to take long positions.
In its outlook for the second half of this year, the investment bank said although its analysts were trimming their estimates, they maintained a “constructive” attitude and added they “would be buyers” of the stocks of companies in the Macau casino industry.
The research note by DS Kim and Sean Zhuang says JP Morgan forecasts that the annual rate of growth in gross gaming revenue (GGR) would be 13 percent in the second half, and that annual growth in Macau casino company earnings before interest, tax, depreciation and amortisation would be 17 percent – more than investors had been expecting following a second-quarter market performance that has seen the average share price of the seven companies followed by JP Morgan decline by about 18 percent.
The institution predicted the second-half GGR in the VIP market would see its growth slow to 9 percent year-on-year as the mainland Chinese economy softened. This view of the VIP market segment gels with the research of Japanese brokerage Nomura, which recently halved its year-on-year growth estimate for VIP gross gaming revenue to 7 percent from 14 percent.
The performance of the mass market so far this year had been strong – outperforming most estimates – said JP Morgan. Second-quarter growth of about 21 percent in year-on-year terms was the fastest expansion in four years. That story was likely to continue throughout the year, the bank said, although the number would ease slightly, to 17 percent it estimated.
Positives – such as the launch in the first half of MGM Cotai from MGM China Holdings Ltd, and of Morpheus at City of Dreams Macau, the flagship Cotai resort of Melco Resorts and Entertainment Ltd; and the eventual launch of the Hong Kong-Zhuhai-Macau Bridge – would see a strong third quarter, the institution added.
Macao Government Tourism Office recently flagged an increase in tourist arrivals across the summer of between 3 and 5 percent. Investment analysts have noted previously that there need not be a direct correlation between mass tourism arrivals and the performance of Macau mass-market gambling, given the importance of the premium mass segment, where relatively well-heeded players bet in high multiples in cash, rather than on credit like the VIPs.
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