Casino Stocks: Insight into Japan, Potential Winners, Macau Optimism

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The casino sector continues to gain on continued discussion over
Japanese legislation
possibly legalizing gambling. Bank of America Merrill Lynch analysts Billy Ng and Naoki Kamiyama give insight into the legislation following meetings with politicians and experts.
Bank of America Gives Insight into Japan Legislation
Bank of America analysts reported that the Japanese bill to legalize gambling gained momentum last week following meetings with politicians, experts and companies. Ng and Kamiyama remarked that the bill is likely to be passed in the fall special session of Diet. The analysts noted that Osaka may pass Tokyo in the integrated-resort development as Osaka Mayor Hashimoto has shown greater support for the development. Tokyo governor Masuzoe commented that integrated-resorts are not his priority. In addition to the difference in priorities by government officials, Bank of America said that Osaka will possibly be more cost-effective. The analysts see the city bringing in higher ROIC with lower resource competition over Tokyo. Ng and Kamiyama added that real estate prices and labor are cheaper and see Osaka will likely offering a larger tax break to companies.
Potential Winners
Bank of America emphasized that
MGM ResortsMGM
has become a "serious candidate" in the sector. The company reported that they would like to partner and support the local culture and customers. The analysts added that the company's background in construction could also prove useful. Ng and Kamiyama listed potential "winners" from the casino legislation. Operator winners include
Las Vegas SandsLVS
, Genting Singapore,
Melco CrownMPEL
,
Wynn ResortsWYNN
, MGM Resorts, and
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Caesars Entertainment Corp.CZR
. The tourism winners list include Oriental Land, Imperial Hotel, and Keisei Railway. Mitsui Fudosan, Taisei, Kajima lead the construction list. Sega Sammy, Konami, Glory, Tokyotokeiba, Japan Cash Machine, and Daikoku Denki are listed under Bank of America Pachinko/ slot winners.
Firms Remain Optimistic on Macau and Japan
Despite near-term pressure on shares from VIPs, tables, the smoking ban, and lower gaming revenue growth over the past months, analysts continue to cite their optimism on Macau and Japan.
Morgan Stanley
maintains optimism over U.S. and Macau stocks. Morgan Stanley analyst Thomas Allen sees MGM and Wynn resorts as leading contenders for U.S. and international development.
Citigroup analyst Anil Daswani
analyzed the Macau gaming sector, maintaining a Buy on four big names. Daswani remarked on the sectors growth in Macau and improving RevPAR in Las Vegas.
Cameron McKnight from Wells Fargo
noted near-term implications of the volatility in Macau. The analyst reiterated an Outperform on Las Vegas Sands, Wynn Resorts, MGM, and Melco. Despite sector optimism, McKnight sees a 10 percent near-term downside risk for Las Vegas Sands and Wynn. Daiwa analyst Alison Law and Barclays analyst Phoebe Tse expect a flat to declining Macau June gaming revenue. Law noted that World Cup soccer betting will contribute to soft revenue. Amid these concerns, the analysts noted that the valuation is attractive for the long-term investor.
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Posted In: Analyst ColorLong IdeasShort IdeasReiterationAnalyst RatingsTrading IdeasBank of AmericaBarclaysCasinos & GamingCitigroupConsumer DiscretionaryJapan Legislationlong-term investingMorgan StanleyWells Fargo
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