Shares in Macau’s casino operators may rally in the short term following better-than-expected November gross gambling revenue, an easing in trade tensions between the U.S. and China and increased visitation after the opening of a bridge between Hong Kong, Macau and the mainland, Morgan Stanley forecasts.
However, the firm warns a slowdown in premium mass growth will affect EBITDA margins, especially in Q1 next year and “should not be underestimated.” It also notes that adjusted mass revenue growth in 4Q is tracking at less than 10 percent year on year, compared to 16 percent in 3Q18 and 19 percent for the first nine months of the year.
Morgan Stanley says its two top stock picks at present are MGM China and Melco Resorts & Entertainment.
It says the ramp up in MGM Cotai, which opened earlier this year, has been slower than it expected, though the recent opening of three junkets and the planned opening of other VIP facilities before Chinese New Year should help the company grow faster than its peers.
President’s Club is scheduled to open before the end of this year and Mansions before CNY.
Morgan Stanley says Melco has been underperforming peers due to weak results in both the second and third quarters of this year, as well as being penalized for its complicated group structure.
“3Q18 earnings were also affected by luck, one month extra bonus and closing of smoking areas on the mass floor. We think all of these factors should make these quarters a low base and help the company report much higher growth in 2019,” it said.
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