Gaming | Analysts say better than expected revenue, G20 brought good news for casinos

U.S.-listed Macau casino operators follow their Hong Kong peers sharply higher after the industry got a double-dose of supportive news this weekend.

Shares of Wynn Resorts Ltd., Melco Resorts & Entertainment Ltd., Las Vegas Sands Corp., and MGM Resorts International all rose at least 4 percent in early trading in the U.S., while the Bloomberg Intelligence Macau Gaming Index (BIGAMEAC) rose 9.3 percent to a 10-week high.

The advance was spurred by better than expected industry data released from the Gaming Inspection & Coordination Bureau, which said this weekend that November gross gaming revenue (GGR) rose 8.5 percent year-over-year, beating the estimate of 4 percent, according to seven analysts surveyed by Bloomberg, and marking the 28th straight month of gains.

And an easier macroeconomic environment further helped the beaten down stocks, as the “constructive outcome from Presidents Trump and Xi’s G20 meeting” should help the stocks recover, at least in the near term, according to Morgan Stanley.

Even with yesterday’s advance, the index is still down 18 percent for the year. China’s growth rate plus the status of Macau concession renewals will continue as concerns, possibly limiting additional near- to intermediate-term advances, some watchers say.

Here’s what casino analysts have to say about this weekend’s developments.


“There are a few puts and takes that need to be accounted for in the data which lead us to believe the headline growth number was a bit higher than underlying trends (net-net) though all of these were already known.”

1) “We have heard some reports of higher than average hold for November,” which would imply that underlying demand was weaker than the reported GGR growth; Telsey estimates this is worth 1.0 to 2.0 percent.

2) Nov. 2018 had one additional Friday vs Nov. 2017 – likely worth 4 to 5 percent. “Partially offsetting these factors was the occurrence of the Grand Prix on Nov. 18.” Telsey estimates the race, which can absorb “a significant share of transportation capacity that would normally be available for gaming customers,” probably hurt GGR by about 1 percent.

“In total these factors lead us to believe underlying demand was likely closer to the 3-4% range. Ultimately, we think this data is reflective of an ongoing slowdown in the VIP segment of the market,” which has been “well flagged at this point with commentary from both MGM and WYNN pointing to weakness in the 4Q.”

“We remain cautious on the prospects for growth going forward.” Telsey continues to be concerned over concession expiration dates for the Macau casino operators.


Nov. GGR implies an average of MOP833 million per day last month, tracking better than the MOP756 million daily run rate Oct. 8-31. “Junkets attributed the softer Oct. volume to President Xi’s visit on Oct. 23 thereby driving some pent-up demand in early Nov.”

“From our discussions with operators, we suspect VIP volume has normalized back to low to mid-single digit % yoy in recent weeks. On a positive note, mass-market GGR, especially that of grind mass segment, remains resilient, as reflected by the strong travel data crossing the HK-Zhuhai-Macau bridge.”

“Given a lower base and based on past seasonality, we suspect daily GGR would be around 770 million to 830 million patacas/day in Dec., which would imply 5%-13% y/y growth.”


“The better-than-expected finish to the month is a positive development, particularly against challenging comparisons, which should result in a positive reaction from the shares.”

Furthermore, “the results of the G20 should allay Chinese macroeconomic concerns for the time being, and present a positive outcome for our related stocks […] The decision to postpone the 25 percent tariffs is a positive for equity sentiment and will curb the pressure on the RMB devaluation.” China immediately beginning to purchasing goods to reduce the trade balance “should be a constructive development.”

Still, Jefferies continues to view the Macau market “with caution given the mixed information flow from operators and unknown concession rebid process.”

“Although valuations appear risk-adjusted, we believe the current dynamics in the market are challenging to underwrite.”


“November was helped by high hold in VIP…Had hold been more normal at ~3%, y/y growth would have been 4%” instead of the 8.5 percent reported. “We estimate VIP GGR was up ~10% y/y and Mass was up ~7% y/y. Several junkets highlighted a rebound in visitation by high-rollers.”

“Assuming weekly channel checks during the month were accurate, the implied ADR for the last 5 days of November would have been 802 million patacas, with improvement in the second half of November compared to the earlier part of the month.”

Still, “the macro environment in China is creating headwinds for GGR growth.” Economic data for November continues to show weakness, with China Manufacturing PMI trending down year-over-year every month since June and hitting 50.0 last month, which was the weakest figure in 28 months, Umansky wrote (NOTE: a figure below 50 represents economic contraction). Business confidence also fell to 54.2 vs 56.4 in October.

For December, Bernstein is “preliminarily estimating” 6.0 to 8.0 percent growth on a year- over-year basis. “While near term slowdown in GGR is evident, we have a positive outlook on the Macau gaming industry in the long-run, especially Mass (and Premium Mass in particular).”


“The November GGR result marked the 28th consecutive positive monthly comp for the market. Bottom line is that the market continues to hold up better than the ‘fear’ that is associated with it.” Even excluding the one extra Friday night, Stifel said results would have still topped expectations.

VIP GGR was “flat to slightly down for the month, while mass continues to rise in the mid to upper single digits.”

“With shares across the group continuing to see pressure (mostly around macro fears) throughout the month, we sense today’s GGR announcement should act as a positive catalyst.”

But “given investors’ lingering uncertainties with respect to the overall health of the Chinese economy, we expect Macau operators’ shares to remain somewhat range bound until additional data points confirming the overall direction of the Macau gaming market emerge.”

Stifel maintains its 2018 GGR growth estimate of 12 to 14 percent and initiates a 2019 growth projection in the range of 2 to 6 percent.


“We expect the better-than-consensus GGR growth number for November to continue to improve investor sentiment toward the U.S.-listed Macau stocks, which have begun to recover since Wynn Resorts issued its draconian outlook roughly three weeks ago.”

Since that warning, the stocks have rallied, but valuations still remain “attractive.” “We see ~18% potential upside (on average) for the stocks, which could be conservative if there is upside to our ‘kitchen sink’ growth forecast for 2019.’

The temporary truce between Presidents Trump and Xi also provides a near-term catalyst, while “the slope of economic deceleration in both China and the U.S. is likely to determine the intermediate-term trend in these stocks.”


Macau GGR growth is a “single-digit story going forward.” “We do not believe the bridge has had a material impact on GGR. It will take many quarters, if not years, for the bridge to begin to have a material impact on Macau’s gaming industry.”

Looking ahead, “the most likely scenario remains a decent mass market story (low double-digit growth) and a mixed VIP story with modest growth. Based on recent conversations we’ve had with VIP operators nobody has hit the panic button yet and, depending on week-to-week fluctuations, most are still seeing growth and are cautiously optimistic about their prospects.”

Union Gaming now estimates Dec. GGR growth of 7.0 percent. The firm expects “a slow start” to 2019 and estimates first-quarter GGR of up 3.0 percent. GGR should pick up thereafter to mid-single digits growth for the full year.


November’s GGR beat was the “first positive surprise since April” despite a difficult year ago comparison of 23 percent growth.

“Returning demand from the premium mass and VIP business is probably helping to accelerate gains.” BI believes these trends could extend through Dec., “which faces a lower comparison hurdle and also has greater mass-market demand given the holiday period.”

“Still, concerns of slowing Chinese consumption drag on consistent VIP growth through next year despite casino operators’ upgrades across all the high-end facilities in their properties.”

BI believes fourth-quarter Macau GGR could rise more than 5.7 percent and that Macau’s 2019 revenue growth “will hinge on a steady ramp up of the mass-market through key catalysts such as better connectivity to China, new Cotai resorts and China’s stimulus efforts.” Bloomberg

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