Analysts downbeat on Macau four-quarter profits

Analysts downbeat on Macau four-quarter profits

Tuesday, January 17, 2017 Posted by Luke Massey
Morgan Stanley say weaker luck with have affected figures

A weaker luck factor coupled with weaker mass-market growth means that operating profits for the major casinos in Macau are likely to come in only 5 percent higher year-on-year despite the recorded rise in gross gaming revenue (GGR) being double that in the last three months of the year.

The marketwide figure would represent a pullback from the 13 percent rise in EBITDA in the previous three months. However, the analyst team at Morgan Stanley suggest that Wynn Macau and Galaxy will benefit disproportionately when they report in a few weeks’ time, with the first seeing the early benefits of a full quarter of results from its Palace property in Cotai which opened in the third quarter.

“Wynn Macau and Galaxy could see strong quarter-on-quarter EBITDA growth of 18 percent and 7 percent respectively, higher than market growth of 5 percent. Wynn EBITDA should be helped by full quarter of Palace.”

Galaxy, meanwhile, is forecast to see the benefit from stronger VIP business and the addition of slots revenue. Sands China will also enjoy the full benefit of a recent opening, the Parisian having debuted in the previous quarter, though the analysts suggest the added retail EBITDA for Sands will be offset by the weaker luck factor.

The team said the outperformance from Wynn and Galaxy should be ascribed to strong execution, better VIP play and to better performing retail.

Of Wynn Macau they added: “The opening of Wynn Palace has been lukewarm, but the company has taken several initiatives to build the database, optimize tables between properties, extend promotions and participate in the Cotai bus program to ensure a steady ramp up from a low base in the third quarter 2016.”

On the downside, the Morgan Stanley team are predicting flat or even declining EBITDA for both Melco Crown and MGM China due to the luck and mass-market factors.

Looking ahead to this quarter, the analysts are expecting another rise in GGR across the gaming enclave for the Chinese New Year period over January and February. For the two months they suggest a rising GGR of between 10-12 percent which is higher than the normal seasonal benefit of between 6-8 percent. The team attribute the improved backdrop to rising economic indicators in China, greater room capacity, newly-opened junket rooms and new high-speed rail links from Zhuhai (Macau) to Shanghai.

However, the weaker-than-expected mass-growth figure means the M Stanley team have marginally lowered their estimates for GGR for this year to 9 percent from 10 percent.

Results season kicks off toward the end of January with Wynn Macau and Sands China.

Totally Gaming says: For seasoned Macau-watchers, the good news from Macau in recent months was always going to be tempered by the reality of what the results from the operators might tell us. It will be fascinating, given the current political backdrop in both the US and China, to see what the major figures from the companies say during the results season about the pace of growth for the year ahead and their hopes for Macau.

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