Macau casino share-price correction excessive: analyst
Shares of Macau casino operators are down about 10 percent month-to-date, but analysts say concerns pushing down prices are overblown.
Concerns on decelerating VIP casino revenue growth in Macau, recent negative headlines and share downgrades by several brokerages have triggered a sharp share-price correction in the sector over the past few days.
Macau casino stocks went up on Wednesday after a weak performance in the first 10 days of June.
In a note, Isis Wong from Credit Suisse said the fundamentals of the sector have not worsened from what was seen in April.
Ms Wong said two important factors remain unchanged: mass market is “still growing strong”, up by 36 percent year-to-date, and overall average casino daily revenue continues hovering between MOP900 million (US$113 million) and MOP1.1 billion.
“Given that the VIP segment now contributes 40 percent of the EBITDA [earnings before interest, taxation, depreciation and amortisation], with the stocks falling 10 percent month-to-date, it is effectively pricing in a 25 percent decline in VIP earnings, a magnitude comparable to the decline in 1H09 following the financial crisis,” the brokerage said, adding that the correction “is excessive”.
In a research note, Citi analysts also said recent headlines are overblown and that Macau stocks are oversold.
Citi’s analysts lowered their 2014 gross gaming revenue (GGR) forecast from 22 percent to 13 percent, but reiterated their bullish call on Macau casinos.
Macau’s casino GGR for May reached MOP32.35 billion, a year-on-year increase of 9.3 percent. The accumulated total for the year to May 31 is MOP165.87 billion, a year-on-year growth of 15.8 percent, show data from the gaming regulator.
Citi said the full smoking ban on mass-market casino floors, to be introduced on October 6, will have a negligible impact on GGR.
“Given the installation of smoking rooms on mass floors, the full smoking ban on the mass market will likely lead to an immaterial ~2 percent decline in mass GGR, based on our smoking survey,” Citi said.
While some brokerages expect the FIFA World Cup that kicks off on Thursday to impact June GGR, Citi said the tournament is unlikely to have as large an impact as in 2010, because most of the matches will not overlap with the peak hours in Macau casinos.
Concerns over a reported crackdown on China UnionPay transactions are also exaggerated, Citi said.
“From our understanding and discussions with junkets, no VIP players from China would use Union Pay to bring cash to Macau for gambling (otherwise there is no need to use junkets in the first place),” said the note.
“We also believe that most premium mass players have their own businesses that are set up outside of China and have access to foreign currencies. Therefore, only a small portion of premium mass players would have the difficulties in converting currency,” it added.
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