While China’s cyclical slowdown will have its impact on Macau, analysts from JP Morgan are advising investors to “climb the wall of worry” and hold their casino stocks over the long term.
In a report published on Tuesday, the analysts, which include DS Kim and Sean Zhuang, said that negative sentiment has already been priced in, and in fact, there are good upsides on all Macau stocks, especially Wynn and Sands.
“… we see good values and believe the risk-reward is compelling for patient investors,” said the analysts.
“Sentiment is already bearish amid a slew of negative headlines… valuations are cheap…” and upbeat 18Q4 earnings could see a potential rebound in consensus after six-month long downgrades, it wrote.
“Most of the negatives are well known and already (if not overly) priced-in,” they added.
The analysts are expecting 2019 GGR to fall by one percent in 2019, compared to 14 percent growth in 2018.
On Wynn, JP Morgan points to the company’s strong product offering, service quality and brand name, supported by a strong management team.
“Add to this the fact that its capex cycle has peaked, and we are confident about its cash-flow generation capability for years to come… This, not to mention its historical-trough EBITDA multiple of 10x, is too attractive to ignore, in our view; we see an opportunity to purchase the best-quality asset at a great bargain,” it said.
On Sands China, the analysts noted that the company remains a low-risk, solid return investment opportunity in Macau.
“We look at Sands as an attractive way to play the structural mass story given its outsized exposure to this segment, not to mention its unparalleled dominance in mass with ample room inventory & powerful cluster.”
In the medium term, the company’s property reinvestment plans (such as the Londoner, two
luxury suites towers), which will start kicking-in from 2020 is a cause for optimism, added the analysts.