EBITDA targets achievable for 2017, Deutsche Bank says

The consensus EBITDA forecasts for 2017 for Macau’s operators now look to be achievable for this year, after targets lacked harmony with gross gaming revenue growth throughout 2016, Deutsche Bank said in an analysis.

The firm said that previously, forecasts for EBITDA has failed to take account of the cost pressures stemming from the opening of new resorts that came onto the market.

“Subsequently, 2017 market EBITDA forecasts have come in, GGR growth has accelerated, and we now believe consensus EBITDA is achievable on current GGR forecasts.”

Deutsche Bank  notes that non-gaming related costs rose 11 percent year-on-year in Q4 with the openings of Wynn Resorts’ Wynn Palace and Las Vegas Sands’ Parisian in 3Q.

“This cost increase shrunk the operating leverage experienced in the 3Q16, a period with heavy pre-opening, materially.”

That said, the German bank said pitfalls still exist going forward as new supply begins to come onto the market from the second half of this year, again pushing up costs.

“We don’t believe there is material room for revenue growth trends to slow without the risk of meaningfully negative market EBITDA revisions.”

The bank remains “neutral” on the stocks of the Macau names as it believes much of the optimism surrounding the recovery has already been priced in.

Macau gross gaming revenue jumped 17.8 percent in February, exceeding expectations and driven by a strong recovery in VIP spending.

Deutsche Bank notes that VIP rolling chip volume rose 7.2 percent in 4Q, marking the first time the metric had been in positive territory since 1Q, 2014.

“We believe this growth rate has accelerated in the 1Q 17.”

In terms of market EBITDA share, the bank says Galaxy Entertainment was the clear winner last year, growing its share in every quarter. Both Wynn Resorts and Melco Crown also gained, though Las Vegas Sands and SJM Holdings lost ground, it said.