UBS sees 3 percent Q3 profit drop for Macau operators

Profitability in Macau’s gambling sector is likely to drop 3 percent in the third quarter after quarterly revenue fell a greater-than-expected 7 percent, UBS said.
The decline was driven largely by the VIP segment, which was down 19 percent year on year and 15 percent sequentially.
On a more a positive note, the rate of decline was lower in the third quarter than the previous three months due to a positive business mix, underpinned by the mass market, and one-off costs booked in the second quarter.
The analysts note that Melco Crown Entertainment is forecast to record the biggest year-on-year fall in earnings of 15 percent year on year, and 6 percent sequentially due to a large VIP share loss over the three months. However, this was offset by a positive mass segment performance.
MGM China is set to gain 6 percent year-on-year, although will be down 6 percent on a sequential basis due to a lower win rate in VIP. But the VIP volume declines were less than the industry overall.
Wynn Macau and SJM Holdings were likely to see declines of 6 to 7 percent year-on-year in profitability in the third quarter. But VIP weakness would lead to "flat" earnings trends on a sequential basis.
Sands Macau is also forecast to book flat year-on-year earnings due to weak VIP volumes, although that will be offset by better trends in non-gaming and sequential lower costs.
UBS says overall it had lowered forecasts of gross gaming revenues to flat in contrast to a previous position of up 3 percent. The VIP segment is now expected to be down 11 percent from a previous 7 to 8 percent, while the mass market is up 23 percent compared with the previous forecast of a positive 26 percent.
UBS says it remains cautious over the outlook given the slower-than-expected Golden Week trends, a weak VIP segment, and a continued slowdown in the premium mass market due to the enforcement of the smoking ban in casinos. UBS also foresees continued political uncertainty in China as well as a challenging capital environment for junkets.
Overall, UBS says that revenue generally in Macau after posting zero growth in 2014, is forecast to edge up to 6 percent in 2015, and 8 percent in 2016, regaining double digit growth of 12 percent in 2017.