DB: Sell GEG, SJM
Despite continuing year-on-year growth in Macau’s casino industry—gross gaming revenues outperformed in August, rising by 17.1 percent—Deutsche Bank says the party won’t last. In a September 11 note, the bank cut its 2019 growth outlook for Macau gaming from 11 percent to 4 percent.
According to a Bloomberg News analysis, the bank believes the market is heading into a downward cycle, “similar to the late-2011 to mid-2012 slowdown when GGR growth sharply decelerated to 6 percent year-on-year from 20 percent year-on-year.” DB put a “sell” recommendation on two Macau operators, Galaxy Entertainment Group Ltd. and SJM Holdings Ltd., and fully five of six Macau gaming operators saw their shares decline that same day, reported GGRAsia. Wynn Macau Ltd. dropped 3.28 percent. MGM China was down 7.42 percent. Galaxy Entertainment fell by 5.69 percent, and SJM Holdings dropped 6.44 percent.
In a note last Monday Japanese brokerage Nomura observed that Macau gaming stocks have decreased between 20 percent and 30 percent since early June, “with much of the decline over the last five trading days” in September. “We believe the decline to be somewhat justified given fears over an extended and more damaging trade conflict, but also believe it’s overdone,” said analysts Harry Curtis, Daniel Adam and Brian Dobson.
“Several operators we spoke with over the past few days said that their sequential VIP volumes have been increasing over the last six weeks,” the Nomura team continued. “VIP growth has decelerated, but to a more measured rate, which has a silver lining in that excessive growth attracts the attention of Beijing.”
Brokerage Sanford C. Bernstein says the slowdown will be apparent at the end of September; the Bernstein team forecast 8 percent to 11 percent GGR growth for the month.
According to Forbes analyst Muhammad Cohen, despite the ups and downs, Macau’s gaming revenue is “trending the right way. For investors with confidence in Macau’s long-term success, the knock-back in stock prices represents a buying opportunity.”
Despite DB’s “sell” recommendation, Galaxy Entertainment reported first-half net revenues of $28.1 billion, up 25 percent year-on-year with EBIDTA up 34 percent year-on-year, according to G3Newswire.
Galaxy Chairman Lui Che Woo said he expects the market “to shift towards the higher margin mass market. With a robust development pipeline, GEG is well-positioned for long-term success and remains fully committed to support the Macau government’s efforts in transforming Macau into a world center of tourism and leisure.”
