Macau Optimism Will 'Run Out of Steam', Says Deutsche Bank

Macau optimism will soon run out of steam, said Deutsche Bank analyst Karen Tang in a research note. The analyst noted November was tracking weak and pointed out "unexciting" early data from Melco Crown's (NASDAQ: MPEL) newly opened Studio City.

"For Nov 1-8th, Macau GGR was only MOP525m/day, -34% yoy, weaker than Oct (-28% yoy). Although this was hurt by bad luck, we still see this data as weak, considering Studio City's opening on Oct 27th added many non-gaming attractions, 3% tables, and 5% hotel rooms to the market. Macau stocks have rallied over 20% since Oct 1st on optimism towards potential supportive policies. We think this optimism will soon run out of steam, esp if Studio City fails to stimulate GGR. Early data suggest Studio City has yet to benefit the market. Instead, it is taking 1.5-2.0% mkt shr away from peers," said Tang.

"In the first week of Nov, MPEL captured 14.8% market share (ex-slots) up from 13.3% in Oct. Initial impact from Studio City seems rather weak as all its initial 200 tables are for the mass market, which takes much longer than VIP to ramp. Since Studio City’s opening two weeks ago, the biggest losers have been Galaxy and SJM, as their low-end mass player segment has the most overlap with Studio City," continued the analyst.

Tang added, "Current share prices have factored in a mild GGR recovery in 2016, assuming some supportive govt policies will be announced before year-end. We think the Macau Chief Executive will announce some tourism policies next Tuesday when he delivers his annual policy address. However, contrary to market believes, we think his new policies will not be able to stimulate GGR as we see Macau’s problem as demand-driven instead of supply-(or visa-) constrained."

The analyst concluded, "Trading at 13x DB 2015 EV/EBITDA, we see current Macau valuation as unattractive (vs historical avg 12x), esp considering our view that Macau GGR will fall another 7% in 2016 (vs consensus GGR +8% yoy)."

Deutsche Bank has a Hold rating on Melco Crown Enter.

For an analyst ratings summary and ratings history on Melco Crown Enter. click here. For more ratings news on Melco Crown Enter. click here.

Shares of Melco Crown Enter. closed at $18.95 yesterday.

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