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Macau Q1 earnings likely to surprise to the downside: MS

The upcoming earnings of Macau’s six operators may produce some negative surprises amidst higher staff costs, higher reinvestment rates and slowing revenue growth, Morgan Stanley forecasts.

The firm expects overall Q1 hold-adjusted EBITDA to drop 2 percent over the prior year. In Q1, overall gross gambling revenue was $9.4 billion, flat on the prior year, with a 10 percent decline in VIP revenue vs a year ago, despite better luck and an eight percent gain in the mass sector.

Morgan Stanley says MGM China is likely to see the strongest quarter-on-quarter growth with a gain of 9 percent as its new property on Cotai begins to ramp up strongly, while Melco Resorts and Entertainment has the highest potential for positive earnings estimate revisions.

On MGM, the note says Cotai could show further growth in EBITDA, to US$75m, with new junket rooms helping to ramp VIP business amid good luck.

“Cannibalization of Peninsula property appears to have stopped for now – we expect that property to post flat to slightly up QoQ EBITDA. More upside should come from the opening of Mansion in late March and continued improvement at Cotai facilities,” it says.

The firm also sees some upside to 2019 estimates for Wynn Macau, but says SJM Holding and Galaxy are to report QoQ declines and underperform.

“This is driven by both weaker VIP volume and relatively low luck,” the note said. “We also expect that the smoking ban and construction disruption affected Galaxy in 1Q19 too.”

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