Macau casino stocks slump as CLSA predicts falling revenue

Macau casino shares declined, with Galaxy Entertainment Group Ltd. sinking to a one-year low, after CLSA Asia-Pacific Markets predicted revenue in the world’s biggest gambling destination will decline this year.
Galaxy slid 3.5 percent to HKD46.35, the lowest close since August 2013, while Sands China Ltd. fell 2.9 percent to HK$41.30. The stocks led losses on the benchmark Hang Seng Index, which slipped 0.6 percent to 23,768.13. Macau’s gross gaming revenues will probably drop 1 percent this year compared with an earlier prediction for 5 percent growth, CLSA analysts led by Aaron Fischer wrote in a note. They also cut the 2015 growth estimate to 5 percent from 10 percent.
“Given limited growth prospects, it’s reasonable to expect global investors who have gone into casinos to be taking money out of the sector,” Pauline Dan, Hong Kong-based head of Greater China equities at Pictet Asset Management Ltd., said by phone yesterday.
Casino operators are leading losses on the Hang Seng Index this year. Sands China and Galaxy each tumbled more than 33 percent in the period as gaming profits are squeezed by China’s anti-graft campaign, slowing economic growth and demands for higher wages. Both stocks were among top performers on the gauge in the five years through Dec. 31, 2013, data compiled by Bloomberg show.
Galaxy, founded by billionaire Lui Che Woo, trades at 17.2 times reported earnings, down from a multiple of 109.3 in 2011 and compared with 10.4 for the Hang Seng Index yesterday. While casino valuations are starting to look attractive, Sam Le Cornu, Macquarie Investment Management’s top-ranked stock picker, is waiting for a better entry level.
“They could fall further,” Le Cornu, whose Macquarie Asia New Stars Fund has outperformed 99 percent of peers tracked by Bloomberg in the past five years, said. “If they fall another 15-20 percent, we would be buying.” Jonathan Burgos, Bloomberg