Well Fargo Agrees With Morgan Stanley On Macau Gaming Slowdown

The gaming sector in Macau continues to disappoint. Staff cuts have risen and negative operating leverage has turned off investors. Dynamics within the region, such as Casinos only being able to hire locals, have brought the industry under further pressure as tourism slows and competition for workers has increased. Casino’s are now competing amongst a smaller pool and that pool of potential workers knows what they worth, forcing companies to increase incentives which in turn dampens margins.
Wells Fargo believes the trends for H2 2014 remain rocky which is the cause of Macau gaming stocks dropping more than 5.5 percent just this week. The headwinds on Macau gaming stock prices are:

1. slower mass revenue growth
2. continued VIP fundamental contraction
3. China’s push for anti-corruption rules alongside transit visa changes
4. an impending smoking ban

Over-zealous revenue growth estimates resulted in heavy disappoint when the companies couldn’t deliver. Revenues in Macau grew 14 percent YoY in August and the highest estimate according to Wells Fargo was 20 percent.

Chinese credit issue making players in macau wary, expected worries over smoking bans and transit cost for Chinese citizens, and slower than expected growth in revenues are expect to plague the industry and the region.  Wells Fargo and Morgan Stanley agree: Macau is experiencing a slowdown and is losing its favor with investors.