Gaming shares drop as Deutsche Bank latest to turn bearish

Gaming shares from Sands China Ltd. to Wynn Macau Ltd. dropped as Deutsche Bank AG recommended selling all six Macau casino operators, joining a chorus of investment banks that don’t see a recovery anytime soon.
The opening of two new gaming venues this year isn’t expected to boost demand, and the market is underestimating pressure on casino operators’ profit margins, Deutsche analyst Karen Tang wrote in a note dated yesterday. Gaming revenue will fall 30 percent this year from 2014 compared with the previous estimate for a 13 percent decline, and the slide may continue in 2016, Tang wrote.
“I don’t think brokers are courageous enough to recommend buying at this moment,” said Ben Kwong, a director at brokerage KGI Asia Ltd. in Hong Kong. “The number of visitors is dropping due to China’s anti-corruption policies and operating costs are rising.”
Deutsche yesterday cut five Macau casino operators to sell from hold or buy, while maintaining its sell rating on shares of the sixth, SJM Holdings Ltd. Wynn dropped 6 percent at the close in Hong Kong. Galaxy Entertainment Group Ltd. lost 4.8 percent, while Sands China slid 3.7 percent. SJM, MGM China Holdings Ltd., Melco Crown Entertainment Ltd. each slumped at least 3.2 percent. Casino shares accounted for the biggest five drops on the MSCI Hong Kong Index, which fell 0.9 percent.
The gaming companies lost about USD92 billion in market value over the past year, according to data compiled by Bloomberg. Casino revenue plunged the most on record in February as Chinese President Xi Jinping’s anti-graft campaign continued to deter VIP gamblers at a time when the nation’s economic slowdown is already curbing spending in the former Portuguese colony.
Bets on casino stocks to fall have increased, with short interest as percentage of outstanding shares for Sands China climbing to 0.6 percent on March 6, near the highest since August 2013, according to data compiled by Markit Group Ltd. and Bloomberg. Short interest for Wynn was near a record high, while MGM China was at levels not seen since June 2012.
Gross gaming revenue this year may drop 18 percent, JPMorgan Chase & Co. said on March 8, when it cut ratings on Sands and Wynn. HSBC Holdings Plc and Citigroup Inc. are projecting declines of 21 percent and 16 percent, respectively. Barclays Plc said casino receipts may fall until the fourth quarter. Kana Nishizawa, Bloomberg