Deutsche Bank Sets Some Reasonable Near-Term Expectations For Macau Gaming Stocks

After 26 consecutive months of year-over-year gross gaming revenue (GGR) declines, Macau investors celebrated a modest 1.1 percent year-over-year GGR gain in the month of August. The surprise growth number and subsequent Wall Street upgrades sent Macau gaming stocks soaring, but Deutsche Bank analyst Carlo Santarelli believes that expectations may now be a bit too high in the near-term.

While many Macau bulls feel that consistently positive GGR growth should be enough to carry gaming share prices higher, Santarelli believes a degree of revenue growth is already priced into the market.

“Our analysis indicates that 2017 Consensus EBITDA forecasts likely require GGR growth of ~7% in 2017,” Santarelli explains. While this type of growth is not out of the question, Deutsche Bank believes it will be an uphill battle for Macau.

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With AML regulations and a likely smoking ban, Deutsche Bank expects VIP gaming revenue to be flat year-over-year in 2017. That means that mass revenue would need to grow in the mid-teens to generate overall 7 percent growth.

“We believe the market needs to add roughly $1.9 bn of incremental GGR to reach 2017 Consensus EBITDA,” Santarelli concludes.

Deutsche Bank’s top Macau stock pick is Buy-rated MGM Resorts International MGM. The firm maintains Hold ratings on Las Vegas Sands Corp. LVS and Wynn Resorts, Limited WYNN.