Gaming | Revenue growth could be stalled by China’s macro drop

Just last month, the region’s casinos generated a gambling revenue of MOP21.2 billion – an 18.1 percent improvement over the same month last year – yet Brokerage JP Morgan Securities has expressed less optimism on Macau’s prospects.

The brokerage noted that it has taken a neutral outlook on the stocks of Macau-based gaming operators.

A report from JP Morgan analysts DS Kim and Sean Zhuang states that the “positive surprise in the gross gaming revenue could stall soon as the cyclical tailwind from last year’s China macro drop waning or even rolling over.”

The country’s macro drop included liquidity easing, property rally and commodity price hikes amongst other factors.

“As the sector runs out of positive catalysts, we think investors will focus more on the individual operator’s execution and resulting earnings revision potential, making stock calls increasingly more important,” the team noted.

On a report issued on Friday, banking group Morgan Stanley noted that this year’s second-quarter results might be a good entry point for investors interested in a long-term position in Macau gaming stocks. 

“Macau has underperformed the Hang Seng Index in every second quarter since 2012 – except for 2013 – and we believe the same could happen in the second quarter of 2017,” wrote analysts Praveen Choudhary, Alex Poon and Thomas Allen, referring to the main index of the Hong Kong Stock Exchange, as cited in a GGRAsia report.

According to the group, they are expecting a “high valuation, a seasonally weak quarter, and a peak in China’s PPI [producer price index] to be near-term risks, adding, “in the medium term, we remain constructive thanks to infrastructure.”

Wells Fargo Securities LLC analysts Cameron McKnight and Robert Shore said in a Sunday memo on Macau, and referring to mainland China economic policy: “VIP growth is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14.”

Furthermore, credit debt watcher Fitch Ratings raised its forecast on Macau’s VIP and mass market 2017 growth to 12 percent.