Casino companies operating in Macau dropped in morning trading after casino revenue in the Chinese territory returned to growth in May with just a modest revenue gain as the region faces headwinds from trade war uncertainties and competition. Publicly traded companies in the Macau gaming space include Las Vegas Sands (LVS), MGM Resorts (MGM), Wynn Resorts (WYNN) and Melco Resorts (MLCO).
GAMING DATA: Macau's Gaming Inspection and Coordination Bureau said gross revenue from games of fortune in the region increased 1.8% year-over-year in May to 25.95B patacas. This compares to an 8.3% decline in April vs. last year to 23.59B patacas and an 0.4% decline in March vs. last year to 25.84B patacas. April's results were not only the weakest monthly revenue this year, but the biggest year-over-year decline since June 2016.
Revenue growth in May was the highest so far this year in the region on a percentage basis compared to last year.
WHAT'S NOTABLE: Macau has seen softening growth in gaming revenue since the second quarter, with VIP business being hit by weakening China property prices and turmoil in the stock market. A U.S.-China trade war and slowing Chinese economy are likely to weigh on sentiment in the VIP segment, according to reports. China and the U.S. are trying to negotiate a new trade deal, but there is still uncertainty and the countries have slapped tariffs on billions of dollars worth of their goods.
As the special administrative region marks 20 years since its handover from Portuguese rule, slower mainland economic growth, a weaker yuan and a trade war are threatening to derail its growth.
Many high rollers are also being lured away by rival gaming spots, including Suncity Group's planned opening of a Vietnam resort.
ANALYST COMMENTARY: Stifel analyst Steven Wieczynski told investors in a research note that he expects "limited" response to Macau operators' U.S.-listed shares in response to the slightly lower than expected May GGR print. While some might be disappointed in the slight miss relative to consensus coupled with an easier +12% y/y comp and a favorable calendar, the analyst looks at the results more positively, saying that given the continued fears around the Chinese economy and looming trade wars, he believes any type of growth right now coming out of Macau should be a positive. While VIP trends will likely be choppy for the foreseeable future, the analyst said he continues to believe mass trends will remain strong over the next six months.
Meanwhile, CLSA noted that the May GGR result was "just shy of expectations," and said Las Vegas Sands is "now a possible trade war weapon."
PRICE ACTION: In morning trading, Las Vegas Sands fell 2%, while MGM dropped 2.7%, Wynn Resorts declined 2.3% and Melco Resorts shares trading in New York were down about 0.5%.