Fitch Trims FY15 Revenue Growth Outlook for Macau; FY16 Could See Challenges on Weaker Yuan (MGM) (WYNN) (MPEL)

Fitch Ratings has revised its Macau 2015 revenue growth forecast to a 33%-34% decline, down from our last forecast of a 29% decline. Macau's gaming revenues are down 36.5% year to date through August, reflecting the difficult first-half 2014 comparison and pressures that began to take a toll on Macau's revenues in mid-2014, mainly the corruption crackdown in China. The downward revision forecast takes into account Fitch's reduced expectations for the new capacity to drive meaningful incremental growth.

We expect 2016 to be stable year relative to the gyrations in 2H14 and 2015. We expect growth in 2016 to be relatively flat. The positive impact from the increase in capacity related to Studio City, the March 2016 opening of Wynn Palace and 2H16 openings of MGM Cotai and Parisian will be offset by tough YoY comparisons through May 2016 and the weaker Yuan relative to Macau's Pataca.

The Macau government has not shown leniency in its guidance to limit additional allocation of table games, providing Galaxy phase II with 150 new table games in May 2015, far below what Galaxy Entertainment requested for the project. Positively, phase II may have helped the market find a bottom, with gaming revenues coming in at around $2.2 billion or higher since June. Our 2015 forecast assumes that the recent volumes are maintained and increase slightly after Studio City opens in late October.

Fitch believes the risks operators face related to the new properties cannibalizing the existing properties and table allocations being less generous than what the operators have requested are partially mitigated by the operators' ability to shed development related cost as their respective projects open.

Operator margins will get a boost from shifting excess labor to their new properties, once they're open. We do not expect the recent stock market volatility in China to have a material impact on Macau's visitation. Fitch's sovereign analysts believe that a mainland economic collapse is unlikely, despite volatility. They add that the slowdown is led by investment rather than consumption, making it less dire than may appear for Macau, particularly for the mass segment. However, Fitch analysts expect a structural slowdown with sustained deceleration in GDP growth.

Macau's decision to loosen its transit visa restrictions should produce some positive benefit, underscoring that Macau is willing to use certain levers to prop up its gaming-centric economy. Macau also put off implementing a full smoking ban, instead saying it will study the matter further before implementation.

A smoking ban would impact certain operators more than others, depending on existing utilized smoking areas as well as the building layouts. LVS and Galaxy would be least impacted by a ban, as LVS is least dependent on smoking lounges and Galaxy Macau's phase II incorporated smoking balconies for VIP players.

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