Macau Gaming Investors Should Keep Seatbelts Fastened, Credit Suisse Warns

In a new report, Credit Suisse analyst Joel Simkins explained why he believes 2016 will be another volatile year for Macau gaming stocks. According to Simkins, there are more negatives than positives on the way for Macau in 2016.

Outlook

For now, Simkins believes that supply is not driving demand in Macau, and it is too early to call a bottom in gross gaming revenue (GGR). Some analysts feel that the government’s -13 percent GGR projections for 2016 are overly conservative, but Credit Suisse concedes that they are likely the accurate. Macau weakness reflects the impact of the corruption crackdown, the weak Chinese stock market, slowing GDP growth and the disappearance of VIP gamblers.

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Impact Of Project Delays

Wynn Resorts, Limited WYNN recently delayed the 2016 opening of its new Wynn Palace resort in Macau, but Simkins doesn’t necessarily believe that Wynn’s delay or a potential delay for MGM Resorts International MGM’s Q4 2016 opening would be meaningfully negative for the two companies. “Measured supply growth in Macau could allow for less market cannibalization near-term, operators to refine business models, and easier capacity absorption,” Simkins explained.

Junket Consolidation

Simkins predicts a major wave of consolidation among Macau junket operators. Credit Suisse views this consolidation as a negative for short-term VIP gaming, but views the “purge” as a long-term positive for Macau.

Stock Picks

Of the four U.S.-listed operators in Macau, Credit Suisse prefers Outperform-rated Las Vegas Sands Corp. LVS because of its “enviable competitive position” in Macau and MGM because of its exposure to Las Vegas.

The firm sees the most risk to Wynn and rival Melco Crown Entertainment Ltd (ADR) MPEL; Credit Suisse lowered its price target for Wynn from $76 to $74.

Disclosure: The author owns shares of Wynn and Melco Crown Entertainment.