Why This Firm Is Slashing Macau Estimates; Downgrading Las Vegas Sands, Wynn & MGM

CLSA released a report this week updating the outlook for the gaming industry in Macau. Despite a positive long-term outlook for Macau, analysts believe that things will get worse before they get better.

No Good News

Analysts predict that year-over-year (Y/Y) monthly gross gaming revenue (GGR) growth numbers in Macau will continue to be negative for the foreseeable future. Analysts want to see positive month-over-month (M/M) GGR numbers before they will change their bearish view on Macau.

According to the report, the anti-corruption campaign still scares many former Macau VIP gamblers, and they are unlikely to return until the heat dies down.

Related Link: The Seismic Report Pushing MGM Stock Up

Finally, analysts believe there is downside risk to the table allocation expectations for new projects Galaxy Phase II and Melco Crown Entertainment Ltd (ADR) MPEL's Studio City.

Analysts believe the Chinese government might not approve as many new table games for the resorts as anticipated.

Lowering GGR Growth Projections

Analysts slashed their 2015 Y/Y GGR growth estimates for the Macau market from -9.4 percent to -25.8 percent. They also cut their 2016 GGR growth projection from +26.0 percent to +10.6 percent.

Long-Term Value

Although they have a bearish near-term outlook, analysts still see value in Macau for long-term investors.

"We do not change our secular view that Macau and the oligopoly of companies that control the gaming market stand to benefit as more middle class consumers emerge from China and wish to visit the premier gaming destination in Asia," analysts explain.

Stock Downgrades

CLSA issued the following three downgrades in the report:

• Las Vegas Sands Corp. LVS downgraded from Buy to Outperform; price target $60
• Wynn Resorts, Limited WYNN downgraded from Buy to Outperform; price target $140
• MGM Resorts international MGM downgraded from Buy to Outperform; price target $25