About US$30 billion has been wiped from the value of Macau-related gaming stocks in the past month alone, said Tim Craighead, director of Asian research and senior casinos and gaming analyst for Bloomberg Intelligence, speaking on Friday.
“Our forecast for this year in [Macau] revenue [is] to be down by 18 percent. That’s concerning when it comes to estimates on earnings,” Mr Craighead told Bloomberg Television. “There’s been a massive drop in earnings expectations following that revenue rebalancing,” he added.
A number of investment analysts have recently warned of possible threats to Macau gaming names’ dividends in the current challenging trading conditions.
“We are now down to about 10-and-half-times [price to earnings ratio],” said the Bloomberg analyst. “In this case the stocks have declined so much that we actually have valuations that are returning close to long-term lows,” he added.
Mr Craighead said that as well as the cooling effect on Macau casino earnings of a decline in VIP play – where during China’s current anti-corruption drive even people not involved in any questionable dealings don’t want to be seen conspicuously spending – there was also a troubling fall in the mass market.
“More recently we have seen mass market revenue decline. That had been such a stable – and growing – base, and it’s a very high margin business. So with that coming down, that creates concern,” said the Bloomberg analyst.
Deutsche Bank AG said in a note on Tuesday that average minimum bets on Macau’s mass gaming floors had already fallen 20 percent from their peak.
“We still attribute an awful lot of that [mass market decline] to the smoking ban,” said Mr Craighead, referring to the October ban on tobacco use at tableside or at slots on the mass floor.
But he said there was some optimism that fresh supply of gaming and tourism facilities in Macau in the second half of 2015 could stimulate some fresh demand.
“As we look into the second half…we still see opportunities of a stimulated economy, of new resorts coming in, of more hotel rooms,” said Mr Craighead, referring to the expected opening of Galaxy Entertainment Group Ltd’s Galaxy Macau Phase 2 on May 27 and of Melco Crown Entertainment Ltd’s majority-owned Studio City in the third quarter.
Grant Govertsen, an analyst at Union Gaming Research Macau Ltd, told Bloomberg Television on Friday that his company thought the U.S.-based casino firms with Macau investments would cope best with the current tougher trading conditions, given their prior experience of dealing with major downturns in the Las Vegas market.
In a note on Thursday, the Wells Fargo Securities LLC gaming analytics team of Cameron McKnight, Rich Cummings and Tiffany Lee, said in a commentary on China’s February credit statistics: “In our view, it is very unlikely the Chinese government undertakes another substantial fiscal and monetary stimulus as it did in 2009/2012. We believe these stimulus programmes were a significant driver of the ”hairpin-like” recoveries we saw in Macau.”
The brokerage added: “We believe a 6- to 12-month lag exists between trailing-twelve-month total Chinese credit growth and Macau VIP results.”
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”As the Macau gaming revenue structure is now leaning heavily towards the mass business … once the border fully reopens, the recovery from mass should drive the sector to bounce more swiftly”
Vitaly Umansky, Louis Li and Shirley Yang
Analysts at Sanford C. Bernstein