Union Gaming Research Macau Ltd has downgraded to ‘hold’ the entire universe of Macau gaming-related stocks it covers.
Analysts Grant Govertsen and Felicity Chiang wrote in a note released on Monday that they are “unwavering believers in the long-term story” of Macau’s gaming industry. “However, we don’t see any upside catalysts over the near-term.”
Union Gaming expects a string of negative casino-related headlines over the coming months, from the ban on smoking in mass-market casino floors to delays in transport infrastructure construction in Macau. That, coupled with an expected slowdown on gross gaming revenue (GGR) growth, will keep pressure on share prices, the analysts said.
The firm lowered its 2014 market-wide VIP GGR growth estimate to 7 percent from 10 percent. It concurrently lowered its full-year total market GGR growth estimate to 13 percent from 14 percent.
Late last week, investment bank JP Morgan revised downward its price targets for Macau-related gaming shares and advised investors to wait for a better entry point.
“Ultimately, we believe the market is telling us to expect limited near-term growth and that the next wave of development (against the current Macau backdrop with a lot of noise) will not drive GGR as it has historically,” Mr Govertsen and Ms Chiang wrote.
“It could take several months – perhaps not until the first of the next wave of new supply comes online and we begin to see supply driving demand again – for sentiment to improve and shares begin to again reflect the notable secular growth story that is Macau.”
There are seven new casino-resort venues scheduled to open in Macau starting next year.
Union Gaming downgraded to hold Galaxy Entertainment Group Ltd, Louis XIII Holdings Ltd, Melco Crown Entertainment Ltd, MGM China Holdings Ltd, Sands China Ltd, SJM Holdings Ltd and Wynn Macau Ltd.
The firm provided a list of 13 reasons for its decision. It included what could be a prolonged VIP revenue slowdown owing to a much longer than anticipated and much more intense Beijing-led anti-corruption crackdown, and ongoing consolidation in the junket sector.
Union Gaming also mentioned continued negative macro-economic data coming from mainland China. On top of that, the firm warned of a potential drop in visitation to Macau as soon as next month, when measures targeting the abuse of the transit visa scheme to enter Macau may be put into place.
The firm however said the current environment will eventually lead to “very attractive entry points” for investors.
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Lionel Leong Vai Tac
Macau’s Secretary for Economy and Finance