JP Morgan less bullish on Macau over China macro
Brokerage JP Morgan Securities (Asia Pacific) Ltd says it is “neutralising” its previously bullish stance on the stocks of Macau gaming operators.
“A positive surprise in GGR [gross gaming revenue], a key driver behind earnings upgrade so far, could stall soon as the cyclical tailwind from last year’s China macro backdrop (e.g., liquidity easing, property rally, commodity price hikes) is waning or even rolling over,” said Monday’s report from analysts DS Kim and Sean Zhuang.
The JP Morgan team noted: “As the sector runs out of positive catalysts, we think investors will focus more on the individual operator’s execution and resulting earnings revision potential, making stock calls increasingly more important.”
Banking group Morgan Stanley had said in a Friday report that the aftermath of the second-quarter results for this year might be a good entry point for investors interested in a long-term position in Macau gaming stocks.
“Macau has underperformed the Hang Seng Index in every second quarter since 2012 – except for 2013 – and we believe the same could happen in the second quarter of 2017,” wrote analysts Praveen Choudhary, Alex Poon and Thomas Allen, referring to the main index of the Hong Kong Stock Exchange, a bourse where all but one of the six Macau operators have a listing.
They added: “We expect high valuation, a seasonally weak quarter, and a peak in China’s PPI [producer price index] to be near-term risks. In the medium term, we remain constructive thanks to infrastructure.”
That was a reference to a number of public sector projects including: the Hong Kong-Zhuhai-Macau Bridge, likely to open, the brokerage says, in 2018; Macau’s coming new Pac On Ferry Terminal at Taipa, due to launch in the current quarter; and an ongoing expansion of China’s high-speed rail network that will include new links to Macau’s neighbouring mainland city, Zhuhai.
In Friday’s report, Morgan Stanley raised its 2017 GGR forecast for the Macau industry to 12 percent, from 9 percent. It maintained its estimate on mass-market segment growth at 11 percent year-on-year, but raised it VIP growth forecast to 14 percent year-on-year, from 6 percent previously.
Wells Fargo Securities LLC analysts Cameron McKnight and Robert Shore said in a Sunday memo on Macau, and referring to mainland China economic policy: “VIP growth is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14.”
Japanese brokerage Nomura said in a Friday note that “elevated buy-side expectations could pressure the Macau names,” if first-quarter earnings season, due to start this week, was “just in line” with market expectations.
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