Casino companies operating in Macau moved higher in morning trading despite casino revenue in the Chinese territory after posting its first revenue decline in 29 months. 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 declined 5% in December to 24.942B patacas from a year ago, the first decline in 29 months. This compares to a 16.6% gain in December vs. last year to 26.468B patacas, but was in line with November's result of 24.995B patacas.
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. According to a Bloomberg report, the timing of this year’s Lunar New Year didn’t help Macau’s monthly casino casino, as the holiday typically comes with a few weeks of a marked slowdown prior to it, which showed up in the January figures.
Melco Resorts CEO Lawrence Ho said last week that the concerns about Macau are overblown, while Wynn CEO Matthew Maddox was more cautious, commenting on its earnings conference call that "Chinese New Year is coming up and that is going to be the real test for the first quarter." Maddox aded that "In Macau, it’s inherently volatile and there are peaks and valleys."
ANALYST COMMENTARY: Last week, Deutsche Bank analyst Carlo Santarelli said Las Vegas Sands' Q4 results were softer in the Macau market, with the shortfall largely stemming from increased commissions, given the strength in VIP, which distorted the margin mix profile and led to a 130 basis point year-over-year margin decline.
Wolfe Research analyst Jared Shojaian said this morning that January'S GGR results were not as bad as feared, given some expected "at least a high-single digit" decline y/y. The analyst told investors that February GGR could increase 8%-10% y/y, but expects a wide range of estimates given "messy" y/y comps and holiday timing. He added that the trade deadline will be a key factor, but said the data he tracks does not seem to suggest any imminent recovery in Macau GGR growth for now which has been a driver for multiples in the past. Deutsche Bank analyst Vitaly Umansky agreed that GGR was better than expected and noted that China macro data for January continues to show weakness. A challenging macro environment in China will pose headwinds to GGR growth in Macau in 2019, he said.
PRICE ACTION: In morning trading, Las Vegas Sands was up 1.3%, while MGM gained 1.3%, Wynn Resorts jumped 2.24% and Melco Resorts shares trading in New York were up about 2%.
Las Vegas Sands
+0.8 (+1.37%)
MGM Resorts
+0.39 (+1.32%)
Wynn Resorts
+3.19 (+2.59%)
Melco Resorts
+0.47 (+2.18%)