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The Macau government released the March gaming data, which came on expected lines with a 39% drop in gross gaming revenues. It appears that the market is now stable and the gaming numbers were well received with investors and most of the gaming stocks in China saw an uptick in today’s trade. Sands China was up 2%, MGM China Holdings up 3% and Wynn Macau was up three quarters of a percent in the Hong Kong market. Nevada gaming numbers for the month of February were also released yesterday and the Las Vegas Strip saw a 4.38% drop in gaming revenues as compared to the prior year period. On that note, we discuss below these developments in the casino industry.

Las Vegas Sands

Las Vegas Sands‘ casino operations are hurt with the recent decline in Macau gaming. Gross gaming revenues declined for 10th consecutive month in March to $2.7 billion as compared to $4.5 billion in the prior year period. This can be attributed to the ongoing graft crackdown, which has kept VIPs away from Macau. However, it must be noted that VIP business accounts for only 17% of Las Vegas Sands’ Macau profits while mass-market gaming and non-gaming sources make up the rest. Macau government plans to carry an assessment of the casino operators in the region to review the non-gaming facilities incorporated in the casino resorts. This should go well with Las Vegas Sands, which has been focused on expanding its non-gaming operations such as retail space and it is well positioned to benefit from any growth in non-gaming activities. It must be noted that Las Vegas Sands currently gets 80% of all the non-gaming income out of 35 Casinos in Macau. Overall, we remain bullish on Macau gaming and Las Vegas Sands’ Macau operations in the long run (see – Las Vegas Sands Price Estimate Revised To $69 Amid Continued Decline In Macau Gaming).

We estimate gross revenues of over $15.50 billion for Las Vegas Sands in 2015, with EPS of $3.52, which is slightly higher than the market consensus of $2.68-$3.45, compiled by Thomson Reuters. We currently have a $69 price estimate for Las Vegas Sands, which is more than 25% ahead of the current market price of $55.

Wynn Resorts

Unlike Las Vegas Sands, Wynn Resorts has much larger exposure to VIP gaming and it accounts for 25% of the company’s value, according to our estimates. A decline in Macau gaming weighed over the company’s 2014 performance and China revenues declined 32% while the EBITDA was down 36%. This can be attributed to lower VIP gaming turnover, which declined 12% in 2014 and we expect it to further drop by 15% in 2015.

A wave of high-profile arrests of senior Chinese officials has hurt the VIP business of Macau casinos. Visa transit restrictions, a smoking ban and the weakening economy added to the woes for casino operators in the region. Moreover, Beijing wants Macau to diversify its economy, largely dependent on gambling, which accounted for 80% of the local government revenues. However, we expect the turnover to pickup from 2016, when the company’s new Cotai resort will be operational. Meanwhile, the stock has declined more than 15% this year amid weak Macau gaming data. We remain bullish on Wynn’s Macau operations in the long run primarily due to an increase in visitation from Mainland China and higher supply of rooms with its new Cotai resort opening up next year (see – Our Revised Price Estimate Of $159 For Wynn Resorts).

We estimate revenues of over $5.65 billion for Wynn Resorts in 2015, with EPS of $6.93, which is in line with the market consensus of $4.58-$7.37, compiled by Thomson Reuters. We currently have a $159 price estimate for Wynn Resorts, which is more than 25% ahead of the current market price.