Macau 2017 estimates raised at Morgan Stanley

Macau’s gross gambling revenue is likely to grow by 10 percent in 2017, according to analysts at Morgan Stanley, who raised their forecast from a prior estimate of 2 percent.

“We believe the Macau cycle has turned and 2017 could show 10 percent GGR and 13 percent EBITDA growth, the first in four years,” it said.

However, the brokerage says it’s maintaining its in-line view on the sector due to ongoing regulatory risk and the high stock valuations, with Macau operators outperforming Hong Kong’s Hang Seng Index by 28 percent year to date. Wynn Macau and Galaxy Entertainment are the firm’s top picks for next year.

Morgan Stanley said it has upgraded its forecast following better-than-expected performance in the second half of 2016, with both mass and VIP coming in above estimates.

“We think mass revenue can sustain high single-digit growth in the medium-term,” it said. Drivers will be improvements in infrastructure; visitation; spending per visitor; overnight visitors and an increased effort by operators to woo premium mass and direct customers.

Morgan Stanley also warned that part of the reason for the pick up in Macau was cyclical, with GGR having historically been tied closely to China’s Producer Price Index. That may peak in Jan/Feb next year, it said.

“2H16 saw cyclical growth in the Macau group,, which is unlikely to be repeated in 1H17 when commodity prices and China real estate volume could peak and roll over,” it said. “In addition, China capital outflow and Rmb depreciation could result in a potential clampdown and lower purchasing power, respectively.”