Macau: Let the Good Times Roll

By Ben Levisohn

Casino operators with Macau exposure have produced double-digit gains this year. Still, investors are underestimating their potential growth, according to Sterne Agee.

AFP

In a report today, Sterne Agee analyst David Bain writes:

Based on Island data checks and other factors, our 2Q13 EBITDA forecasts for [Melco Crown Entertainment (MPEL), Las Vegas Sands (LVS) and MGM Resorts (MGM)] are now 20%/3%/2% above consensus, while [Wynn Resorts (WYNN)is mostly in-line. High-margin mass gaming (~65%+ of Macau market EBITDA, +31% ytd growth) drives most upward revisions. Visa policy loosening, the Guangzhou/Zhuhai rail and an up to 40% augmentation to immigration capacity at the Gongbei checkpoint, should continue to fuel more and higher-quality mass

patrons.

Melco Crown is Bain’s favorite, though he also likes Las Vegas Sands and MGM Resorts.

Gambling revenue, meanwhile, continues to grow at a supercharged pace. RBC’s John Kempf sums up the data:

For the MTD period ending July 7, 2013, Macau generated gross gaming revenues (including slots) of MOP 7B, or an average daily rate (ADR) of MOP 1B. Assuming the remainder of the month has a similar ADR as June (MOP 942), this would imply that the full month of July would come in at MOP 29.6B, or a 20.4% increase. We believe these strong results reflect an abnormally high win rate, although we understand that mass market traffic remains strong.

Citigroup’s Anil Daswani expects the strong run to continue:

Macau: Let the Good Times Roll