More downsides expected in 15Q1: MSR

Monday 13th of April 2015

Morgan Stanley Research predicts Macau will see another sequential decline in EBITDA of 14 percent QoQ and 38 percent YoY in 15Q1 , with no signs of a turnaround.

“We expect Macau gaming companies to see declines in EBITDA in 1Q15 of between 8-18% QoQ or 37- 41% YoY, similar to revenue decline of 14% QoQ or 37% YoY,” analyst Praveen Choudhary wrote in a note.

The research house says there is a risk of earnings per share declining in 2015 and 2016.

“At the operational level, companies are unable to cut costs fast enough to compensate for the decline in revenue.”

In terms of stocks, Choudhary says that Wynn Macau could outperform Sands China and SJM Holdings in the near term if the change in QoQ EBITDA were to move with the stock price, but sees overseas stocks as more attractive.

“Purely on valuation, we see MPEL as the most expensive and SJM as the cheapest stock in our universe. We recommend investing in overseas gaming stocks like Bloomberry, NagaCorp and Echo…”

Despite an assurance by Finance Secretary Lionel Leong of a 3 percent increase in number of tables, the note says there are still more downsides than up for now.

“The April revenue trend is weak, Phase 2 EBITDA may disappoint due to fixed costs attached to the opening of a mega casino, and potential risk of visa tightening.”

“But the biggest risk is whether demand is weakening, even in the mass segment, which is visible through weaker hotel occupancy and falling number of hotel guests.”