What's Coming For Macau

In a report issued Thursday, UBS analysts Robin M. Farley and Arpine Kocharyan took a look at the Macau gaming industry to help investors better understand what to expect from their second quarter.

The experts believe VIP revenue the peninsula witnessed a 46 percent year-over-year decline, pretty much the same as in the first quarter – which also saw sales fall 46 percent despite Galaxy's Phase 2 opening.

UBS thinks the mass segment also saw a decline of 24 or 25 percent year-over-year, surpassing last quarter’s 20 percent tumble. Both VIP and mass segments fell sequentially, as well, although in smaller percentages.

Gross gaming revenues are expected to come in down 37 percent year-over-year, and the sector EBITDA, down 42 percent, “driven mainly by softer top line and higher operating costs, though overall mix is favorable as higher margin mass market is declining at a lower rate vs. VIP,” the note explains.

The experts also note that labor costs in Macau are still feeling upward pressure driven by salaries. However, “this could subside post some expected attrition in H2, somewhat offset by new openings,” the experts add.

A Few Takeaways

The analysts then look into some of the major companies operating in Macau.

They expect Las Vegas Sands Corp. LVS to deliver second quarter Macau EBITDA of $509 million, “showing the least YOY or sequential contraction among 6 operators in Q2, down -36% YOY and -4% seq. vs. market down -42% and -14% seq., driven by solid share gains across all segments, strong direct VIP, albeit helped by strong hold in VIP.”

UBS also anticipates a 9 to 11 percent sequential fall in room revenue at the Venetian and Sands Cotai Central.

Wynn Resorts, Limited WYNN is expected to underperform the market in terms of Macau EBITDA growth. The firm anticipates Macau EBITDA of $173 million, down 44 percent year-over-year. The analysts explicate the decline will be largely “driven by share loss in the mass segment, where, recall, Wynn has been shifting more tables to over the past year.”

For MGM Resorts International MGM, UBS is modeling second quarter Macau EBITDA of $137M, down 39 percent year-over-year, while for Melco Crown Entertainment Ltd (ADR) MPEL, projections point towards the biggest sequential EBITDA decline in the quarter (22 percent) among the 6 operators. The decline is expected to be larger (39 percent) when EBITDA are compared to the data reported a year ago.