Credit Suisse's 2015 Macau Gaming Outlook

Credit Suisse issued its 2015 outlook on the Macau Gaming Sector Wednesday and forecasted a “year of rebalancing.”

Analysts Kenneth Fong and Isis Wong thought “the major round of earnings cuts is largely behind us and VIP is beginning to show signs of sequential stabilisation.”

The in the analysts view, “the sell-off in the gaming sector is likely not far from the bottom” and they saw “valuation support in the near term, should the stocks trade down another 5- 10 percent to hit an ex-growth rate of 11.5x FY15 EBITDA/8 percent adjusted FCF yield.”

Fong expected GGR to grow by -6 percent/+13 percent in 2015/2016E.

On the supply side, Fong highlighted four key themes:

1. “More efficient junket management: The effective VIP commission rate may rise as mix shifts towards bigger junkets.”

2. “Cost control: Staff cost increase in 2014 will slowly be partially offset by cost saving initiates in 2Q.”

3. “Moving down the value chain: Operators would have to tap lower tier and new group to replenish lost premium mass demand, driving higher player re-investment.”

4. “Grind mass to be near-term driver: On the positive side, steady mix shift from premium to high margin grind mass should buffer margin pressure.”

The analysts preferred MGM China Holdings Ltd (HKG: 2282) and Melco Crown Entertainment Ltd (ADR) MPEL.