Pullback in Macau Seen as Buying Opportunity at Deutsche Bank (MPEL) (LVS) (MGM) (WYNN)
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Deutsche Bank analyst Karen Tang called a pullback in Macau stocks a "buying opportunity." The group was pressured following reports that China had detained 18 Crown Resorts employees. In Tang's view, China is mainly targeting marketing efforts by overseas casinos, and she doesn't think it will impact Macau.
"Macau stocks fell 2-4% today on back of news that China detained 18 employees of Crown Australia's casinos. As China is mainly targeting mkting efforts by overseas casinos, we think impacts on Macau are limited. We spoke to a few junket agents, direct VIP hosts & premium mass hosts today. Junket agents don't think this impacts them. Direct VIP & premium mass hosts may refrain from visiting players in China near-term but they think this will have less than 10% impact on their segments (40% of Macau's GGR). Net net, we estimate impact is less than 4% of Macau's GGR or 5-6% of EBITDA. We see this pullback as a buying opportunity for Macau stocks," said Tang.
The analyst added, "Premium mass accounts for c.30% of Macau’s GGR. Although Macau casinos are not allowed to promote gambling by marketing in China, some marketing hosts visit their top-tier premium mass players in their hometowns to show “face”, and organize social events to wine & dine their customers. After the weekend’s arrest, Macau hosts may refrain from these China visits in the near term. But interestingly, marketing hosts told us that these trips rarely increase the player’s no. of trips to Macau. Instead, these trips mainly affect market shares. In other words, how often (or how much) a premium mass player gambles in Macau mainly depends on macro factors (e.g. housing prices, wealth effects, ease of visa). The purpose of these China visits is mainly to encourage players to choose a particular casino over another. In any case, we think the impact is less than 10% of premium mass GGR."
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