Gaming stocks rally short-lived says Deutsche analyst

Deutsche Bank has warned that the rally of Macau’s stocks last month will be short-lived, contrary to the March evaluations of brokerage firms, Macquarie Research and Nomura Securities.
As cited in Barron’s Asia, Deutsche Bank analyst Karen Tang cautioned that the Macau stock rally has already ended and that a hotel price war is in full swing.
“We think that the Street [Wall Street] had misinterpreted the return of high-end players during [the] Chinese New Year as a permanent trend,” Tang wrote, going on to suggest these figures had led to a forecast gross gaming revenue stabilization in the first quarter of 2016, followed by a recovery during the second quarter.
“We think this is incorrect,” she countered. “In fact, since the number of high-end players (both VIPs and premium mass) are now smaller than in previous years, their pent-
up demand is now being exhausted very quickly over the holidays.”
Tang also wrote in the note that, “since these high-end players now rarely return to Macau over the non-holidays, Macau’s low-season is becoming much weaker than in previous years. This is something which the market has not been able to grasp yet.”
Also pointing to weak retail spending despite the slight increase in visitor traffic over the Easter weekend last month, Tang wrote that mainlanders in Macau are spending less, “another sign that Macau’s visitor mix is shifting towards more leisure and less spending/gambling.”
Furthermore, as casino operators seek to maximize their share of the market and maintain high occupancy rates, Macau can expect an abundance of sales promotion activities and price slashing.
All of this is trending to a price war that the Deutsche Bank analyst believes is already underway in the MSAR. After checking the operators’ websites, the note concluded that Sands, Galaxy and Melco Crown are all offering room discount packages, with some as high as 40 percent for a stay before the end of 2016. DB