China capital outflow cap could affect Australia casino revenues

The impact of China restricting capital outflows is a growing risk that could pose a threat to Australian casino revenues and halve VIP takings by 2017, according to CLSA.

Though it is not yet clear if China has the will or the means to restrict capital outflows, if it does  Australian casino revenues will not be immune, while Macau could see further downside, CLSA said in a note.

“We present a bear case where Australian VIP revenues halve by FY17 and mass revenues fall 3%, resulting in EBITDA declines of 13-22%.”

Though such a scenario is unlikely – particularly at high end gaming – CLSA says, the potential impact if it does suggests “Australian casinos are best avoided for now.”

CLSA said the heightened risk to Australian casinos has led it to cut its Crown, Echo and SkyCity price targets by 3.0 percent , 4.2 percent , and 3.5 percent, respectively. 

“However, we make no changes to earnings forecasts at this stage. Crown’s domestic earnings seem most at risk but it is also arguably the cheapest at current levels so we maintain a positive rating.”

“However, we apply negative ratings to both Echo and SkyCity until we can say with greater confidence that the tap is not being turned off…that may take some time.”