ToCasino.net Online Casino

Macau’s casino revenue in April rose 10.6% from a year earlier to 31.3 billion patacas, $3.9 billion. For the year, Macau’s gaming revenue is up 17.5%.  However, most analysts expect a slowdown in revenue growth in the months ahead to a final figure of 15% growth for 2014. Wells Fargo Wells Fargo Securities senior analyst Cameron McKnight sees growth coming in slightly lower at 13% and investment opportunities accompanying the slowdown.

In a conference call for investors last week, McKnight said, “We expect 2014 to be another robust year of growth in Macau, but expect choppiness” in share prices for Macau’s casino operators. “Investor Investor interest and investor anxiety have increased,” McKnight said. “Short-term volatility could create buying opportunities.”

Wells Fargo follows Macau casino stocks listed in the US, Las Vegas Sands Las Vegas Sands, Wynn Resorts Wynn Resorts, Melco Crown Entertainment Melco Crown Entertainment and MGM Resorts International. The brokerage has an outperform rating on the first three stocks. (Macau’s other gaming licensees, Galaxy Entertainment Group and SJM Holdings, are listed in Hong Kong, along with US company subsidiaries Sands China, Wynn Macau and MGM China.)

For the full year, McKnight forecasts mass market growth of 29%, down from a record 35% last year, and VIP growth of 7%, down from 13% last year. After a stellar first quarter, growth will decelerate for the rest of year, with second half VIP growth projected at just 3%, he estimates. Mass market revenue is much more profitable than VIP play, but VIP volume drives overall gaming revenue. So even as overall revenue growth slows, profit growth can keep rocketing ahead if the mix skews toward the mass market. But investors can be misled by revenue headlines, leading to volatility and, as McKnight sees it, opportunities.

To project VIP revenue, McKnight puts the most stock in China’s credit growth as a leading indicator. He says the VIP growth in the second half of 2013 reflected credit growth in the first half of that year. Credit growth has slowed substantially since then, and he expects that filter through in VIP junket promoter betting volumes for the rest of this year. McKnight believes that credit growth is a better indicator of the VIP market than broader consumer trends, based on both technical analysis – the model has held through two inflection points, which is where correlations are most likely to break down – and practical evidence: “China’s average income is $13,000. That’s not the incremental customer in Macau.” Certainly not at $150 a night for a room and minimum table bets approaching $50.

When VIP growth contracted substantially in second half of 2012, ahead of the leadership transition in China, Macau operator share prices on US markets fluctuated substantially. McKnight expects similar volatility this year, and he characterizes price declines as “potential entry points” for investors. He remains bullish on Macau for the medium term, despite his below consensus estimate for growth this year, but suggests “a more defensive stance.”  His top picks are Las Vegas Sands and Wynn. McKnight likes Sands for its mass market strength and non-gaming amenities, and Wynn for projected mass market share gains ahead and progress on its Cotai property. He sees dividend growth likely for both.

McKnight projects Macau to grow into a $115 billion gaming market in 2018, a 20% compound annual growth rate. He bases that on gaming revenue reaching 1% of the combined GDP of Hong Kong and Macau, similar to the penetration rate in Australia, which McKnight sees as the most similar market. More resorts, hotel rooms and better transportation infrastructure to bring visitors to Macau underpin the estimate.