Despite a recent price correction in the Macau casino names and with the city’s gaming sector showing high outstanding short interest, gaming stocks are likely to remain weak, says a research note from Credit Suisse AG.
“In the short term, we may see share prices rebound on some oversold names, but, for a sustainable rally, we need to see an improving daily revenue, stabilisation in year-on-year growth momentum, and recovery in mass market growth momentum,” Kenneth Fong and Isis Wong, Hong Kong-based analysts at Credit Suisse, wrote in Tuesday’s note.
The bank estimated gross gaming revenue (GGR) of MOP17.5 billion (US$2.2 billion) for the first 21 days of September, with average daily revenue improving to MOP900 million last week from previous MOP800 million in the first two weeks of September.
“We expect the September GGR to drop [by] 12 percent to 14 percent year-on-year to MOP25-25.4 billion,” the analysts said.
Cameron McKnight of Wells Fargo Securities LLC also expects Macau’s gaming revenue this month to drop about 14 percent from a year earlier. The analyst said the forecast implies a 26-percent year-on-year fall in VIP revenue and 10 percent mass growth.
Month to date, average daily casino GGR in Macau “is down 11 percent from August’s MOP932 million average and versus historical sequential growth of -8 percent,” Mr McKnight wrote in a note issued on Tuesday.
The slowdown in mass revenue growth seems to be gathering pace this month, after dropping from 37 percent growth in May to 15 percent in August, according to analysts.
Recent reports have suggested that mass GGR growth could be flat in October, following a sharp decline this month.
Credit Suisse said the momentum for mass market would be important to set the base for investors to form their growth expectation for 2015. “A stronger mass growth is also needed to alleviate investors’ concern on industry over-supply issue as we enter the new casinos opening in 2015-2017,” wrote Mr Fong and Ms Wong.
Investors will be closely monitoring the weekly revenue trend to gauge the momentum of the Macau gaming sector and signs of bottoming, said Credit Suisse analysts.
“In view of the tight junket liquidity, high-end VIP players staying low profile and tough comparison base, we expect a soft October Golden Week ahead,” they wrote. “Together with the uncertainty of impact from the smoking ban effective October 6, we believe the sector is likely to stay weak until late October/early November.”
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”Many investors cite Golden Week as a catalyst to significant, sustainable visitation increases and a showcase for profitability for many casinos [in Macau]... However… we are concerned recovery estimates may again be pushed back”
Analyst at Roth Capital Partners