Credit Suisse Sees Underlying Weakness In Macau

In a new report, analysts at Credit Suisse gave their updated outlook for Asian gaming stocks based on the latest numbers out of Macau in April. While headline revenue numbers showed signs of stabilization during the month, analysts see underlying signs of weakness.

The numbers
The headline gross gaming revenue (GGR) number for the month of April reflected a 39 percent year-over-year (Y/Y) drop, the same 39 percent Y/Y drop that was reported in March. However, by digging a bit deeper into the numbers, Credit Suisse analysts see some troubling statistics. VIP revenue, which has been hit extremely hard in Macau, fell 48 percent Y/Y in April, while rolling chip volume declined by 52 percent Y/Y for the month.

Why does rolling chip volume matter?
Rolling chip volume represents the total amount of non-negotiable gaming chips wagered and lost by VIP players and is not affected by the outcomes of the wagers. In other words, while GGR numbers incorporate the luck (good or bad) of the gamblers, rolling chip volume represents the actual amount of gambling going on.

When Credit Suisse adjusted for the seemingly bad luck the VIP segment had in April, they estimate that the headline GGR number could have been -42 percent Y/Y.

Other troubling trends
Daily GGR average worsened month-over-month in April and mass revenue drop widened. Analysts believe that these trends could lead to further margin compression in Q2.

Market share
Las Vegas Sands Corp LVS gained the most market share during the month, capturing 2.8 percent gains M/M. SJM and Melco Crown Entertainment LTD MPEL lost the most market share in April, dropping 1.7 percent and 1.3 percent share, respectively.

Outlook
Overall, Credit Suisse has a gloomy outlook for the big four U.S.-listed Macau casino operators, Las Vegas Sands, Melco Crown, MGM Resorts International MGM and Wynn Resorts Ltd WYNN based on weak fundamentals and unattractive valuations. Analysts see Wynn and Las Vegas Sands as the two most vulnerable names looking forward.

Disclosure: the author owns shares of Melco Crown Entertainment.