Analysts cautious on Macau names after crackdown report

Two research firms, Goldman and Nomura, expressed caution on Macau casino owners in separate notes to investors today. The firms are worried that a new effort by China to crack down on money transfers to Macau could hinder the casinos' growth. NEWS: One of the largest operators of excursions to Macau warned on Friday that the Chinese authorities have initiated "large-scale" probes into "questionable cross-border money transfers," Bloomberg reported, according to Goldman Sachs analyst Simon Cheung GOLDMAN REACTION: The crackdown could affect the system by which players obtain money to gamble in Macau, warned Goldman's Cheung. In order to avoid scrutiny by the government, some players may gamble less, lowering Macau's gross gaming revenue, or GGR, he stated. Meanwhile, investors could become more concerned about the region's GGR outlook, he wrote. However, noting that not much money is transferred by VIP gamblers through junkets, Cheung does not believe that Beijing has launched a "targeted crackdown of the junket system in Macau." The analyst does expect the stocks of Macau casino owners to "remain volatile." He noted that the stocks' performance has been "lackluster" in the four to eight weeks after the announcement of crackdowns in the past. NOMURA REACTION: The government's crackdown has had "little impact" on Macau's GGR, wrote Nomura analyst Harry Curtis. Nonetheless, the growth of VIP gambling will probably slow, driven by either tighter liquidity or more difficult comparisons, the analyst stated. The recent crackdown was probably driven by the Chinese government's concerns about capital outflows, the analyst stated, noting that Chinese authorities have frequently frozen accounts over the past few years. Nonetheless, Friday's news will increase investors' worries about Macau's growth outlook, according to Curtis. The analyst expects Macau's growth rate to drop to about 10% in the fourth quarter and about 8% in 2018, and he predicted that the stocks' multiples would fall. He kept a Buy rating on Las Vegas Sands (LVS) and Neutral ratings on MGM Resorts (MGM), Melco Resorts (MLCO), and Wynn Resorts (WYNN). PRICE ACTION: In morning trading, Las Vegas Sands lost 0.3%, MGM gave back 0.4%, Wynn added 0.15% and Melco Resorts fell 1%. All four stocks were weak in Friday's trading.