Barclays Analyst: 'Too Early To Call A Bottom' In Macau

In a report published Friday, Barclays analyst Felicia Hendrix commented on the Macau gaming market, noting that it is "too early to call a bottom" due to the ongoing and persistent headwinds facing the market. Hendrix noted that many investors are focusing on when recent sharp declines in gross gaming revenues (GGR) will abate. In addition, new property openings in the region "provide hope for the optimists." However, the analyst is expecting the trend of negative newsflow to continue and weigh on stocks. Hendrix further stated that over the longer term, particularly by year end, the declines should start to be "less steep," which is "compelling" for many investors. In addition, Mainland penetration to the region remains "extremely" with 2014 Mainland visitation of just 21.3 million, or 1.5 percent of the entire population. The analyst cited McKinsey data that suggested the total addressable market is roughly 200 million people and could grow to nearly 300 million by 2020. "Given China's rapidly growing middle class, we view the opportunity for robust growth in Mass GGR in Macau over the long term as promising," Hendrix wrote. "In the short term, we acknowledge that the current adjustment phase the market is going through will need to stabilize before consistent growth can be expected.

Hendrix downgraded shares of

to Equal weight from Overweight with a price target lowered to $105 from a previous $160 as the company has one of the largest exposures to the VIP market in Macau which is "shrinking." Hendrix also maintained an Overweight rating on shares of

with a price target reduced to $55 from a previous $59 as the company's "leading" exposure to the high-margin mass market gives it an edge, although the company is not immune to slowing growth trends in Macau. In addition, the company's "strong" dividend yield of five percent and commitment to grow dividends by at least 10 percent annually is "compelling."