Deutsche Bank Sees VIP Risks and Lack of N-T Catalysts for Macau

In a report published Monday, Deutsche Bank analyst Karen Tang cut 2014 gross gaming revenue (GGR) growth for Macau, downgraded casino operators and lowered price targets on VIP risks and lack of near-term catalysts.

Tang was disappointed with May gross gaming revenue results of MOP780m/day, 30 percent below April-early May run-rate. The analyst wrote, “This "month-end crunch" is a signal of tightening junket liquidity as small junkets reduce lending to preserve cash for the month-end credit settlement with casino operators.” Deutsche Bank noted the correlation with fourth quarter 2011 macro conditions, when VIP growth dropped 1 percent year-over-year in the third quarter on 2012. Using this 1 percent decline comparison, the analyst lowered 2014 through 2015 EBITDA by two to six percent.

Macau shares are down 24 percent from late January. Tang remarked that the stocks have currently priced in VIP revenue to contract by 5 percent year-over-year in the second quarter of 2014 and recovering to single digit growth in 2015. Deutsche Bank added, “Current share prices are still pricing in solid mass table revenue growth of 30% yoy. If regulations on UnionPay change, e.g. fewer pawnshops are allowed, share prices may de-rate further.”