Barclays Still Likes Macau Gaming, Upgrades Sands China

In a new note out on Wednesday, Barclays analyst Phoebe Tse explains why the firm believes that the “worst appears to be over” for Macau casino operators. Barclays is bullish on the slumping Macau gaming industry, and recent indicators of a more accommodative regulatory environment in Macau support the firm’s positive outlook.

No more regulatory land mines
According to Tse, the recent news that the government is easing visitation restrictions for mainland China visitors, along with recent reports that the government might back off of its proposed ban on smoking lounges indicates a shift in regulatory tone. “Since Macau’s revenue collapse was mostly due to regulatory and political factors, an accommodative environment should allow mass revenues to grow again,” Tse explains.

The numbers
Barclays believes that easing year-over-year(Y/Y) comps will also help with the stabilization of gross gaming revenue (GGR) in Macau. The firm is now calling for an overall 32 percent Y/Y decline in Macau GGR versus its previous estimate of a 26 percent decline. However, Barclays now believes that Macau will rebound to 3 percent Y/Y GGR growth in 2016.

In terms of Macau EBITDA, Barclays’ is predicting Y/Y growth of -36 percent, +5 percent and +10 percent for 2015, 2016 and 2017, respectively.

Stock picks
In the report, Barclays upgraded the China unit of Las Vegas Sands Corp LVS from Equal Weight to Overweight and declared the stock its top Macau pick. In addition, Barclays has Equal Weight ratings on Melco Crown Entertainment Ltd MPEL and the China unit of MGM Resorts International MGM. Barclays maintains an Underweight rating on the China unit of Wynn Resorts Ltd WYNN.

Disclosure: the author owns shares of Melco Crown Entertainment.