J.P. Morgan Trims Macau Estimates, Maintains Overweight Ratings

In a new report, analysts at J.P. Morgan have trimmed their 2015 property-level revenue estimates for Macau based on the latest monthly gaming numbers. Despite the revision, analysts remain bullish on a pair of big casino names.

No Surprises

In the report, analysts point out that the market has likely already priced in downward revenue revisions for Macau.

“We don’t think these estimate revisions will come as a surprise to investors given the recent monthly detailed results for the Macau market,” analysts explain.

Related Link: Why Are Casino Companies Exploring Opco/Propco Restructuring?

The Numbers

Analysts reduced their projections for 2015 property-level EBITDA in Macau by 12 percent to about $2.5 billion. The new estimate represents a 22 percent year-over-year (Y/Y) decline. Analysts’ new 1Q15 property-level EBITDA estimate is $640 million, down 32 percent Y/Y and down 10 percent Q/Q.

Outlook For Stocks

For the time being, analysts believe that volatility in Macau casino stocks, such as Las Vegas Sands Corp LVS, MGM Resorts International MGM, Wynn Resorts Ltd WYNN and Melco Crown Entertainment Ltd MPEL, will remain high.

Analysts predict that stability will return to the market when investors begin to get clarity on revenue numbers, impacts of new property openings, table game allocations and potential new government policies.

In the current environment, analysts see the risk/reward balance between dividend yield and downward estimate risk skewed “slightly more favorably” for long-term Macau investors.

Top Picks

Analysts maintain their Overweight rating on Las Vegas Sands based on its positioning in the Singapore and Macau markets, a strong balance sheet and expansion potential.

However, analysts name Overweight-rated MGM their “preferred way to play the LV/Macau operators at this time.”

Disclosure: the author owns shares of Melco Crown Entertainment.