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Morgan Stanley turns cautious on Macau

Morgan Stanley Research says it has turned cautious on Hong Kong and Macau’s gaming industry due to, among other things, regulatory pressures and oversupply concerns, though it expects GGR to pick up in 3Q and 4Q .

The research house said negative earnings revisions and ROE declines were also seen as reasons to be cautious, revising down GGR estimates to negative 26 percent in 2015 from negative 25 percent. Morgan Stanley also revised down its 2016 and 2017 GGR estimates to 6 percent from 10 percent and 8 percent from 9 percent, respectively.

Despite expecting quarters three and four to show sequential improvement in GGR, it might not be enough to remedy revenue declines.

“[It] may not be enough to drive outperformance since higher than expected operating expense, and lower than expected demand mean earnings revision is yet to bottom,” adding that recent data showing a drop in hotel occupancy rates is concerning given there will be a 50 percent increase in the number of rooms over the next 18 months.

“We cut our 2015-17 EBITDA and EPS estimates by 3-14% and 5-18%, respectively, due mainly to lower unit productivity and less tables (200 vs. 300 previously). Our EBITDA and net profit estimates are 13-17% and 18-21% below consensus.”


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