INVESTORS JUMP BACK INTO GAMING STOCKS

2014/11/19

From：Macau Business Daily

Morgan Stanley says investors’ interest in Macau gaming shares is currently ‘very high’. Casino stocks have rebounded 14 percent since October despite the worst revenue performance in years.

Investors are returning to bet on gaming stocks as they plan to profit from the current cheap price of shares with hopes of cashing in when the anticipated recovery kicks in here during the second half of 2015 with the opening of myriad new properties. The market is expecting that with new casinos and hotel rooms available from 2015 on, the capacity of Macau to attract new gamblers will increase, bringing more revenues and lifting share prices.
Despite the worst performance in years in terms of revenue, the unknown impact of the full smoking ban and the challenges of dealing with Beijing’s anti-corruption campaign, the stock prices of the big six casino operators in Macau has increased by double digits since October.
According to a Morgan Stanley report released yesterday, from early October to November 17, Macau gaming industry shares shot up 14 percent. Galaxy and Sands China lead the hike, with stocks rising 18 percent. SJM and MGM were the underperformers, with shares increasing 5 percent and 8 percent, respectively.
For the US bank, the figures show that interest in Macau casinos is rising significantly. ‘Investor interest in the industry is very high, and most want to participate early in the recovery that is expected to come in 2H15 with the help of new casino openings and a lower base effect’, the report said.

Waiting for better times

Investors are entering the casino industry again as they try to profit from the cheap prices of stocks. Prior to the current buzz among investors for casino operators starting, Macau’s gaming shares dropped 40 percent between the first quarter of this year and early October. Galaxy and Melco Crown lost 46 and 48 percent value, respectively, in six months. With an almost 50 percent discount, investors quickly returned to the market. Now, gaming shares are underperforming the first quarter peak by 32 percent and January by 27 percent, according to Morgan Stanley.
The US bank noted that the 14 percent rebound was also caused by the better than expected third quarter results posted by Macau operators. Even if fundamentals are deteriorating (revenues went down 23 percent in October, staff costs are increasing, for example), investors don’t appear worried.
But Morgan Stanley warned its clients that the current prices of gaming stocks could suffer another blow in the coming months, as the expected decrease of more than 10 percent in mass revenues and profits in Macau this quarter have not yet been priced in. The fourth quarter will be a challenge. Morgan Stanley predicts that gaming revenues will decline by 15 to 20 percent year-on-year, with profits going down around 10 percent from a year ago.

VIP bets plunge from HK$25mln to HK$4mln

The record drop in revenues in recent months is not due to fewer gamblers in casinos here. The problem is that players are betting less. A lot less. And it doesn’t matter if it’s VIP, premium mass, mass or grind mass. From recent interactions with Macau’s gaming industry, Morgan Stanley learned that the size of VIP bets today is six times smaller than they used to be and that the number of lower minimum bet tables are on the rise in casino floors.
The US bank says that one of the largest junkets in Macau revealed to its analysts that the money spent on bets by high rollers here has “dropped significantly”. Each VIP customer typically spent, on average, between HK$25 million and HK$30 million in Macau. These players are now betting only a fraction of this amount, in the region of HK$3 to HK$5 million. The anti-graft campaign launched by Beijing is making high rollers more low key in terms of gambling, with some avoiding excessive spending that could alert authorities.
But this trend is not exclusive to the VIP segment. Morgan Stanley also noted that in Macau the number of lower minimum bet tables on mass floors is increasing. This, the US bank says, could be caused by the rising number of group travellers (that normally bet less) and by the full smoking ban.

Copyright@Macau Business Daily