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Macau Headwinds to Continue, Says Deutsche Bank (LVS) (MGM) (WYNN) (MPEL)

June 29, 2015 2:23 PM EDT
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Following a visit to Macau, analyst Carlo Santarelli of Deutsche Bank said he sees limited signs that help is on the way in Macau, as fundamental and regulatory headwinds continue. On a positive note, mass trends showed some stability, he said, though VIP continues to struggle.

"We recently returned from several days of investor meetings with local management teams and other industry contacts in Macau. In short, we found nothing thesis changing and continue to see more potential fundamental and regulatory headwinds than reasons for optimism. That being said, we didn't get the sense another meaningful leg down was around the corner and believe current mass trends are showing stability, while VIP continues to struggle to find a bottom, for multiple reasons," said Santarelli.

Commenting on VIP, Santarelli said, "While hold in June has been a net negative on VIP segment revenue, overall reported VIP results continue to be influenced by the following factors; 1) extended repayment periods, 2) complicated and longer, in duration, capital movements, 3) more scrutiny on credit extension (junket to player and operator to junket), and 4) suppressed demand. While operators spoke optimistically about the future of the VIP segment, we found it telling that most, if not all, have and continue to reconfigure their respective Cotai project casino footprints away from VIP gaming. On a positive note, several operators mentioned the presence of VIP customers returning to the mass floor, a net positive from an operator margin perspective."

On mass trends, the analyst said, "Multiple operators spoke of stability in the mass segment and optimism mass comps could turn positive by year end as weekend visitor volume remains strong. Encouragingly, and unlike VIP segment trends, recent absolute mass revenue levels have been in line to slightly ahead of December 2014 results. In the event of a full smoking ban, which likely leads operators to move mass tables in VIP areas back to mass, industry reported mass revenue should optically pick up ~20 percentage points of growth (2016 event)."

Related US tickers include Wynn Resorts Ltd (NASDAQ: WYNN), Las Vegas Sands (NYSE: LVS), MGM Resorts (NYSE: MGM), and Melco Crown (NASDAQ: MPEL).



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