Macau has potential to underperform in 17Q2: MS

Weaker GGR seasonality, wage inflation and the delay in MGM Cotai could lead to potential underperformance of Macau’s gaming stocks in 17Q2, said Morgan Stanley in a note on Monday.

According to the brokerage, Macau gaming stocks have underperformed the Hang Sang Index yearly since 2012, with the exception of 2013.

“Weaker GGR seasonality in 17Q2 could result in a GGR decline of 5 percent quarter-on-quarter.”

Morgan Stanley also noted that the wage inflation of 2-3 percent which started in March, should be fully realized in the second quarter.

“We also think that MGM Cotai delay from Q2 to Q4 will mean no incremental hotel inventory to

support overnight visitation,” added the brokerage.

Other factors that could drive potential slowdown in the quarter include the peaking of China’s Producer Price Index (PPI), which slowed to 7.6 percent in March; increasing SHIBOR, which could hurt VIP and premium mass business; the slowdown of China’s residential property sales growth, which is an indicator of VIP revenue growth, and the decline of iron ore spot prices, which is correlated to year-on-year growth of Macau GGR.

The analysts note however, that the opening of the Taipa Ferry Terminal in May / June could help traffic slightly.