GGRAsia – Sands China 2Q luck makes it Macau outperformer: Daiwa

Sands China 2Q luck makes it Macau outperformer: Daiwa

Jul 13, 2015 Newsdesk Latest News, Macau, Top of the deck

Five of the six Macau casino concessionaires are likely to record declines of 45 percent year-on-year in the second quarter, on earnings before interest, taxation, depreciation and amortisation (EBITDA), said a note on Friday from Daiwa Securities Group Inc. It said such results would represent quarter-on-quarter falls of 20 percent.

Sands China Ltd is likely to outperform its Macau peers with a decline of 33 percent year-on-year for the quarter, “buoyed by particularly strong luck”, added Daiwa, referring principally to casino hold rates for baccarat, the table game of choice for most players in the Macau market.

Quarterly earnings season is due to begin shortly for the Macau gaming operators.

“We expect Galaxy to be the underperformer, driven by no incremental revenue, and it faces significant deleveraging risks from increased fixed operating costs from GM2’s opening,” wrote analysts Jamie Soo and Adrian Chan, referring to Galaxy Entertainment Group Ltd’s HKD19.6-billion (US$2.5-billion) Galaxy Macau Phase 2, which opened on May 27.

“After adjusting for table reclassifications in second quarter 2015, we estimate that [Macau] VIP GGR [gross gaming revenue] fell by 45 percent year-on-year (-16 percent quarter-on-quarter) and mass GGR declined by 27 percent year-on-year (-9 percent quarter-on-quarter),” stated Daiwa.

The official split on VIP versus mass play for the second quarter will be released before the end of July by the city’s regulator, the Gaming Inspection and Coordination Bureau.

“Anti-corruption remains very real,” said analysts Cameron McKnight and Tiffany Lee of Wells Fargo Securities LLC in a note on Friday, referring to mainland China’s fight against graft. A number of investment analysts have suggested that fear of guilt by association has led some high net worth Chinese players to stay away from Macau.

Wells Fargo noted that the Central Commission for Discipline Inspection, the Communist Party of China’s disciplinary body, had started a new round of what the brokerage called “corruption inspections” on the mainland. They would target 26 government bodies and state-owned companies, including the Ministry of Transport and the National Railway Administration, added Wells Fargo.

The institution also added some commentary on mainland China’s share markets, which saw major falls last week.

“In the past month, the two major [equities] indices in China have fallen roughly 30 percent. The Chinese economy is much more reliant on bank financing than the U.S. economy. Given this dynamic, we believe growth in China may slow in coming quarters, but a significant collapse is unlikely,” said Wells Fargo.