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Citi Sees 'Turning Point' In Macau

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In a recent report, Citi analysts gave an updated outlook for the beleaguered Macau gaming market. Despite a seemingly constant stream of difficulties over the past year, analysts now see what they believe could be a turning point in Macau.

No Imminent Recovery In VIP Numbers

Analysts admit that when it comes to VIP revenue in Macau, "everything that can go wrong has."

They believe that China's anti-corruption crackdown will continue to stifle VIP gaming revenue in 2015, and they have cut their forecast for overall Macau gross gaming revenue (GGR) growth for the year from -4 percent to -16 percent.

Resilient Mass Trends

While VIP trends remain weak, analysts expect mass market to begin picking up the slack in Macau in the second half of 2015.

Analysts see new hotels, including Galaxy Macau Phase 2 and Melco Crown Entertainment Ltd (NASDAQ: MPEL)'s Studio City, drawing more gaming revenue, and they predict that Macau's GGR growth numbers will become positive once again by the end of the year.

Related Link: This 'Game Changer' Makes Wynn Citi's Top Casino Stock

Disappointing Table Allocation For Two Resorts

Casino operators in Macau must gain approval for table games by the Chinese government, and Citi analysts see that process as an uphill battle for Galaxy Entertainment Group and Las Vegas Sands Corp (NYSE: LVS).

Analysts view the two companies' new resorts, GM Phase 2 and Parisian, as extensions of Galaxy Macau and the Four Seasons respectively. Therefore, they believe the government will be stingy when approving tables for these two projects.

Two Game-Changers

Analysts see Melco's Studio City and Wynn Resorts Ltd (NASDAQ: WYNN)'s Wynn Palace as two game-changers in the space. Analysts believe the government will be generous with table allocation to Studio City because of its non-gaming amenities.

They also believe that Wynn Palace, slated to open in 2016, will likely be the premier property on Cotai.

Turning Point

Macau bulls have weathered a rough storm lately, but analysts see hope of a turning-point in the government's sentiment when it comes to GGR numbers. "The Macau government now does not wish to reduce the number of Mainland visitors coming to Macau. Instead it wants to ‘improve' the issuance of visas to independent travelers from Mainland China under IVS," analysts explained in the report.

This subtle change in attitude could represent a shift in the government's approach to the local gaming industry.

In addition to Conviction Buy ratings on Melco and Wynn, Citi also has a Buy rating on Las Vegas Sands and MGM Resorts International (NYSE: MGM).

Disclosure: the author owns shares of Melco Crown Entertainment.

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Feb 2017Morgan StanleyUpgradesEqual-WeightOverweight
Jan 2017NomuraUpgradesReduceNeutral
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