Credit Suisse Cuts Macau Revenue Forecast Through 2016

In a new report, analysts at Credit Suisse summarized their take on Macau gaming stocks. Analysts believe that share prices of gaming stocks reflect an overly-optimistic fundamental view.

Weakening Fundamentals

Analysts feel that the fundamental picture in Macau is still weakening. Despite a 15 percent quarter-over-quarter increase in gross gaming revenue (GGR) in Q1, GGR fell 37 percent year-over-year. In addition, the daily revenue average fell from MOP734 mn in January-February to MOP693 mn in March and MOP611 mn in the first week of April.

Growing Costs And Uncertainty

Analysts believe that there is a growing concern that operators will not be able to find sufficient construction laborers for their current development projects and will have to resort to raising worker wages.

The government’s table allocation decisions are also a wildcard for operators, as operators remain entirely at the mercy of the Chinese government. Finally, consolidation in the junket space may lead to less junket competition and lower margins for operators.

Related Link: Morgan Stanley Comments On Casino Stocks

Cut Forecast

Credit Suisse cut its 2015 Macau GGR growth forecast from -21 percent to -23 percent. In addition, analysts trimmed their 2016 GGR forecast from +10 percent to +9 percent. “While investors may see 1Q revenue as backward looking, margin trend is not,” they caution in the report.

Outlook

Analysts see downside risk to 1Q earnings coming from Macau. Credit Suisse maintains its Neutral rating on Melco Crown Entertainment Ltd (ADR) MPEL. It also maintains its Neutral rating on the Macau units of Las Vegas Sands Corp. LVS and MGM Resorts International MGM and its Underperform rating on Wynn Resorts, Limited WYNN's Wynn Macau.

Disclosure: the author owns shares of Melco Crown Entertainment.