Morgan Stanley upgrades view of Macau, but concerns remain

Morgan Stanley has upgraded its view of the Macau gaming industry to in-line from cautious, but says the sector is still far from bottoming out and concerns remain.

According to the research house, gross gaming revenue growth expectations have largely remained stable since 2H15. Mass revenue has showed signs of stabilizing with the decline narrowing to single digits in December. Thus, EBITDA expectations for 1H16 will likely be similar to 2H15.

However, concerns remain which could trigger further negative earnings revisions. Other risks include RMB depreciation, steeper declines in VIP and premium mass due to more stringent regulations, increase in supply and difficulties in replicating the cost cutting seen in 2015. Thus, Morgan Stanley cautions against bottom fishing, but says stock picking opportunities with certain operators exist.

“In an anemic growth environment (GGR -6%, EBITDA -2%), stock selection becomes even more important. In 2016, we see MPEL and Galaxy outperforming SJM and MGM based on our EBITDA growth expectation driven by additional 50 and 100 new mass tables, respectively, without incremental competition during 1H16.”

Macquarie has also advised investors to avoid bottom fishing opportunities, and to wait for a better entry point, whilst keeping an eye on tactical trading opportunities.