Wells Fargo neutral on Macau

Wells Fargo says it remains neutral on Macau despite largely positive results from Las Vegas Sands in 15Q2, adding that once revenues stabilize, “we do not see a V-shaped recovery.”

In a note analyst Cameron McKnight said it is notable that LVS drove higher share and margins in a market that’s been persistently weak, is relatively established and competition is high. 

“We believe a significant portion of the margin upside was due to (one off) cost cuts – in a business that historically had a fair amount of excess overhead.”

LVS’ earnings were driven by much higher margins and slightly higher gaming revenues in Macau. 

Sands China’s Net EBITDA margin expanded 210 basis points from 26.7 percent to 28.8 percent in the quarter due to a mix shift from junket to direct VIP/premium business, and reductions in one-off expense.

However, Wells Fargo said it remains neutral on Macau generally, and “ we believe the hyper-growth of the past five years is mean reverting to a lower, more sustainable longer term trend line.”

“In our view, market revenues could remain pressured or flatter-for-longer from here.”

“Once revenues stabilize, we do not see a V-shaped recovery as China and Macau are managing growth and we don’t see another major economic stimulus.”

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