Citi: Institutional Investors Don't See Eye-To-Eye On Macau

In the past six weeks, Citi analyst Anil Daswani has met with more than 100 institutional investors from around the world to discuss the outlook for Macau gaming stocks. According to Daswani, investors are still cautious on Macau, but many admit that the long-term free cash flow (FCF) story is compelling.

Hong Kong investors told Citi that they believe that the combination of positive mainland Chinese overnight visitation growth plus the openings of new resorts Galaxy Macau Phase 2 and Studio City has helped stabilize mass gross gaming revenue (GGR).

Daswani found U.S. investors far more cautious. He noted that he talked to a handful of extreme Macau bulls and bears, but the majority of U.S. investors are still on the sidelines waiting for definitive signs of improvement.

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Australian investors raised concern over Crown reducing its stake in Melco Crown Entertainment Ltd (ADR) MPEL. However, Citi argued Crown intends to pay a special dividend following the sale, and controlling shareholder James Packer could simply have needed some cash for personal reasons.

Finally, European investors were most bullish on Las Vegas Sands Corp. LVS’s China unit and like the stock’s large, sustainable dividend.

Citi named the China unit of Wynn Resorts, Limited WYNN its top Macau play, but Daswani noted Wynn Macau, Melco Crown and the China unit of MGM Resorts International MGM all currently have PEG ratios below 1.0.

Disclosure: The author is long MPEL.