Macau Investors: Look At The Forest, Not The Trees

Credit Suisse analyst Kenneth Wong warned Macau casino operator investors not to let the Chinese economic weakness blind them to recent data showing improvement in the Macau gaming business. According to Wong, there are several trends now indicating that a Macau turnaround has already begun.

First, Wong believes that three consecutive months of revenue improvement in Macau is enough to call it a trend. In addition, the latest data indicates that the hardest hit VIP segment has experienced a volume pickup since mid-December, including a particularly impressive showing during Chinese New Year. “Junket sources we spoke to also noted improving repayment cycle and return of high-end players," Wong added.

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He also pointed out that January’s mass market gross gaming revenue (GGR) number was the strongest in the past year and that Credit Suisse now forecasts 1-2 percent year-over-year mass GGR growth in February.

In terms of Macau stocks, Wong believes that the unexpectedly positive data could drive positive Q1 earnings upgrades in coming weeks as well. He noted that even following a recent surge, Macau gaming stocks still trade at only 10.6x EBITDA.

Credit Suisse has Outperform ratings on Melco Crown Entertainment Ltd (ADR) MPEL, and the China units of Wynn Resorts, Limited WYNN, Las Vegas Sands Corp. LVS and MGM Resorts International MGM.

Disclosure: the author is long Melco Crown Entertainment and Wynn Resorts.