Big Picture Thoughts On Macau; Aegis Initiates MGM, Las Vegas Sands, Melco, Wynn

Although Macau gaming faces near-term risks, which limit short-term visibility, the long-term potential seems “most enduring” compared to any gaming market, Aegis Capital’s David Bain said in a report. He initiated coverage on four U.S.-based companies with exposure to Macau.

Bain commented that while it was easy to defend a bull-thesis for Macau gaming in the longer term, it is important to “balance significant potential headwinds in the relative near-term.”

Initiations

Bain initiated coverage of the following stocks:

• MGM Resorts International MGM: Rated Buy, price target of $35.
• Las Vegas Sands Corp. LVS: Rated Buy, PT: $60.
• Melco Crown Entertainment Ltd (ADR) MPEL: Rated Buy, PT: $22.
• Wynn Resorts, Limited WYNN: Rated Neutral, PT: $87.

GGR Growth

Since August 2016, the sector has achieved year-over-year gains in gross gaming revenue , following 26 months of sequential year-over-year GGR declines.

The sector is facing easy comps and “we see some solid signs of stabilization (spend per visitor up YoY August – October; Dore and Huangshan issues in rear-view mirror and Huangshan creditors were actually repaid, junket deposits stable, etc),” the analyst mentioned.

Mainland China continues to fact political and economic risks and these would likely continue to cause stock volatility.

Investors continue to focus on weekly GGR performance, given the risks and the lack of overall visibility in both VIP and premium mass. “Net, we are modestly constructive on Macau stocks in light of fairly full equity multiples (except MPEL’s, which we consider greatly mispriced to the downside),” Bain wrote.

There seems to be potential for upward consensus earnings revisions for Macau companies in 2017, with checks indicating improvement in the mass, premium mass and VIP gaming segments.