Japanese brokerage Nomura thinks the upside for returns on shares in U.S.-listed gaming companies with casinos in Macau could be over 20 percent even if annual gross gaming revenue (GGR) in the city shrinks next year by 3 percent.
In a note issued on Thursday, Nomura added the upside for the stocks covered could be about 30 percent if Macau GGR grows by 3 percent next year.
Nomura did its calculations in the light of the slide in shares in Wynn Resorts Ltd after the company gave a gloom-laden outlook for the fourth quarter of this year.
“Since the stocks are valued at trough levels, we’ve decided to take the more conservative route to our 2019 forecast, now minus 3 percent, since sentiment toward the stocks seems to discount worsening economic conditions in China and continued liquidity concerns,” the note said.
Assuming shrinkage of 3 percent in Macau GGR next year – with VIP revenue declining 10 percent, mass revenue up by 4 percent and slot revenue increasing 3 percent –, Nomura still expects returns next year on the stocks covered, including dividends, to be 35 percent for MGM Resorts International, 27 percent for Melco Resorts and Entertainment Ltd, 17 percent for Wynn Resorts Ltd and 13 percent for Las Vegas Sands Corp.
Wynn Resorts is the parent company of Macau-based casino operator Wynn Macau Ltd. MGM Resorts controls Macau-based MGM China Holdings Ltd, and Las Vegas Sands is the controlling shareholder of Macau’s Sands China Ltd. Melco Resorts directly operates a total of three casino properties in Macau.
Nomura reckoned lower GGR next year was priced-in to the stocks covered.
“Sentiment on the group is terrible. Most investors believe that Macau is ‘uninvestable’. Our experience has been that when opinions are so unanimously negative, then the risk/reward is skewed to the upside,” the note said.
Should Macau GGR turn out to expand by 3 percent next year, Nomura expects returns on the stocks covered to be 39 percent for MGM Resorts, 47 percent for Melco Resorts, 31 percent for Wynn Resorts and 15 percent for Las Vegas Sands.
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Adjusted EBITDA reported by Asian casino operator Melco Resorts and Entertainment for the fourth quarter of 2020