Daiwa Negative, Trim Estimate On Macau Casino Stock

Daiwa Negative, Trim Estimate On Macau Casino Stock

Brokerage Daiwa Securities Group said it was lowering its 2016 Macau casino gross gaming revenue GGR estimate and downgrading the sector.

"We are revising our 2016 forecast GGR from -5% to -10% year-over-year and expect weakness in all operations," Jamie Sue and Adrian Chan said in a note on Friday.

They added: "We downgraded the sector to negative from 'neutral', and we saw further downside risks in the near future and lowered our 12-month price target."

Large gaming margins have come under pressure as Macau operators expand market supply with questions about "fitness" with interest, tax, adjusted earnings before depreciation and amortisation EBITDA as the valuation basis for their business, volatility in Chinese currencies, yuan, "more frequent policy tightening" with respect to the Macau market, and new openings in 2016.

Daiwa said the yuan's "weakness and increased volatility" is likely to put "extra pressure" on Macau's gaming sector, from players' gaming budgets to liquidity channels.

In a report released on Thursday, investment bank Morgan Stanley cited yuan exchange rate risks, given that most bets at Macau casinos are denominated in Hong Kong dollars, a fixed currency in the U.S. dollar.

In a note Friday, Daiwa said. "According to our analysis, operators' calculations for 'adjusted EBITDA' include excluding 1 cash costs, 2 essentially recurring specific cost items and/or 3 business-related items. Therefore, we argue that using it as a profitability benchmark underestimates the price of the stock."

"These non-GAAP [commonly accepted accounting principles] metrics are independently defined and evaluating relative profitability by comparing them is not a fair 'Apple-to-Apple' comparison," the broker added

Regarding Macau, Su and Chan added, "The stability of public imports remains uncertain, given the falling room/share and poor quality of mainland visitors."

Daiwa expects sales of VIP games to fall 12% year-on-year in 2016, up from the previous 8% forecast. The bulk sector GGR is expected to decline 3% year-on-year, the brokerage said.

Daiwa's team said it expects the overall GGR in Macau's gaming sector to grow 4% year-on-year in 2017 and 5% in 2018.

Wednesday's memo, in which Hong Kong Deutsche Bank AG analyst Karen Tang provides comments on Macau's May casino GGR number, also discussed the "quality" of Macau visitors.

She wrote. "Looking ahead to July and August, we learned that many hotels have started offering discounts to attract family travelers during the summer holidays. This reaffirms our view that Macau does not attract high-end tourists."

May's casino GGR results mean Macau casino revenue fell 11.9% Y/Y in the first five months of 2016.

Related to public policy topics, brokerage Union Gaming Securities Asia Ltd said in a note Friday that China's National Tourism Administration CNTA repeated its earlier warning to Chinese tourists about avoiding "bad behavior," including "gambling."

"In our view, this does not represent any real incremental risk to Macau's current GGR story," the brokerage said, adding that "CNTA is only doing its part to talk tough regarding the ongoing anti-corruption/deodorization campaign in Macau." 슬롯사이트 추천