Analysts Bullish on 2019 Macau Gaming Stocks, Predict 20 Percent Growth
Posted on: November 16, 2018, 09:39h.
Last updated on: November 16, 2018, 09:39h.
Gaming stocks for casino operators invested in Macau are positioned to grow in 2019. That’s according to research from Japanese brokerage firm Nomura, which says in a note this week that it’s bullish on the industry in the year ahead.
Nomura’s note predicts that companies publicly traded in the US with casino resorts in Macau — Las Vegas Sands, MGM Resorts, Wynn Resorts, and Melco Resorts — will see shares increase in value by 20 percent, even if gross gambling revenue (GGR) dips in the Chinese enclave.
The analysts say the gaming sector, which has taken a beating in 2018, has current stock prices at “trough levels.”
Should Macau find a way to grow GGR, the gaming stocks could surge as much as 30 percent.
Analysts Counter Wynn
Wynn Resorts CEO Matt Maddox painted a rather gloomy picture for the fourth quarter for his company’s business in Macau. The chief executive said a softening in VIP play will cut into its revenues, but the resorts wouldn’t be switching focus to more of the mass-market visitor.
“What we’ve always focused on in our business is the premium end and we always will, because in Macau while that will be the first to retract in these times, it’s also the first to expand as you come out of these slowdowns,” Maddox told investors.
The comments caused Wynn Resorts shares to drop 14 percent. They’ve since regained some of their losses after analysts opined the market overreacted.
Deutsche Bank maintained a “buy” rating for Wynn, saying Maddox was being “overly conservative.” Nomura agrees, as the firm predicts Wynn shares will increase in value by 17 percent in 2019.
2018 will mark the enclave’s third consecutive annual gain. Through October, GGR is up 14.3 percent on 2017. At that pace, Macau casinos will win around $38 billion when the year ends.
Analysts, however, predict a slowing in 2019. The general consensus is that Macau casinos will win three percent less on its gaming floors, as fewer VIPs travel to the enclave, and the ongoing trade war between the US and China threatens the mainland economy.
Nomura doesn’t believe a three percent total GGR decline will hurt the gaming stocks’ bottom lines. Though Wynn remains committed to the high roller, other casino operators are appealing to the general public, and the pivot has led to more visitor arrivals.
The Macau Government Tourism Office announced last week that 35 million people will visit the enclave in 2018, with 70 percent coming from Mainland China. The roughly eight percent increase is a result of casinos becoming more family-friendly and diversifying their attractions.
The recent opening of the Hong Kong-Zhuhai-Macau bridge is expected to further grow visitation. With much to be optimistic about, Nomura says it’s has a different Macau outlook than many others.
“Sentiment on the group is terrible. Most investors believe that Macau is ‘uninvestable.’ Our experience has been that when opinions are so unanimously negative, then the risk/reward is skewed to the upside,” Nomura concluded.
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