Is Macau Coming Back?

In a new report this week, Goldman Sachs analyst Simon Cheung took a close look at the most recent Macau gaming numbers and presented an updated view on the stability of the industry. After 14 consecutive months of year-over-year declines in gross gaming revenue (GGR), Cheung sees signs of “steady GGR” now returning to Macau.

The Numbers

The weekly GGR numbers for August 10-16 came in at 4 billion MOP, which was flat week-over-week. This time of year typically brings a seasonal pickup in revenue in Macau, but the ailing market is taking whatever positive signs it can find at this point.

Last August, the daily GGR run rate for the month was 9 percent higher than the July rate. The recent devaluation of the RMB could be to blame for the lack of a seasonal pickup so far this August. Cheung speculates that the unexpected currency devaluation might have resulted in short-term liquidity tightening among smaller junkets and agents in Macau, but notes that mass market numbers and larger junket operations remain largely unaffected.

Related Link: This Industry Is Unhurt By China's Currency Woes

Shallower Recovery

Cheung believes that the eventual recovery in GGR numbers in Macau during this economic cycle will be shallower than the levels seen in previous cycles. He cites increasing regional competition as one major difference this cycle. For example, Cheung notes that GGR growth expectations for Cambodia are strong, and flights from China are scheduled to begin within months.

Outlook

Overall, Goldman is moderately bullish on the major Macau gaming stocks. The firm has Neutral ratings on the stocks of Melco Crown Entertainment Ltd MPEL and the China unit of Las Vegas Sands Corp. LVS. Goldman has a Buy rating on the China unit of MGM Resorts International MGM and names the China unit of Wynn Resorts, Limited WYNN as its top Macau stock pick.

Disclosure: the author owns shares of Melco Crown Entertainment.