Macau 17Q2 GGR to decelerate as VIP slows

Gross gambling revenue is likely to gain more than 16 percent in Q2, but will be down about 5 percent sequentially from Q1, while the second half of the year will decelerate further due to a fall off in VIP revenue, Bernstein Research estimates.

In 2H, the firm expects growth to be about 5 percent to 6 percent, leading to a full year result of an increase of about 10 percent.

It says the long-term growth prospects for the industry remain attractive (principally in mass), with compound average growth in GGR of about 8 percent a year through to 2020, with a gain of more than 12 percent in EBITDA.

“While we continue to have a positive outlook on the Macau gaming industry, for most of our coverage universe, valuations have largely caught up with near and medium term prospects, especially in light of continued risks the sector faces (tied largely to China policy and regulatory impact on Macau and unsustainable drivers that have revitalized VIP),” it said.

The firm is maintaining its current ratings level on all six operators, but has revised upwards its share price targets. It two top picks are Wynn Macau, which is benefiting from the ramp up of Wynn Palace and Melco Resorts, both of which are rated at outperform.

“ While Wynn has benefited from the recent VIP recovery, it also continues to be a share taker in VIP on the strength of its product and service offerings. In Mass, Wynn Palace is strongly positioned in the market over the longer run and should continue to ramp up over the next few quarters as marketing efforts are enhanced and the connectivity to the property improves.”

It says Melco’s stock is relatively undervalued due to complexity, with some short-term catalysts remaining unclear.