Macau Stocks Could Give Up Gains if Gov. Policies Don't Revive GGR, Says Deutsche Bank; Melco (MPEL) Raised to Hold

Deutsche Bank upgraded Melco Crown Enter. (NASDAQ: MPEL) from Sell to Hold with a price target of $16 (unchanged). The stock now trades below analyst Karen Tang's price target.

While many are optimistic on supportive government policies, Tang warned that stocks could give up gains if new policies fail to revive GGR.

"Macau stocks jumped 11% in the last two days after the govt promised to introduce supportive policies for Macau. We see the mkt reaction as a repeat of July's optimism; after the transit visa was relaxed on 1st July, Macau stocks rallied an avg of 18% (range 5-30%) over the next 6 wks. We see Cotai operators (Sands, Galaxy, MPEL) as beneficiaries of potential supportive policies as China govt said new policies would focus on quality, rather than quantity of visitors (e.g. non-gaming overnight visitors). But if new policies fail to revive GGR, we fear stocks may give back all gains, as they did in August," said Tang.

"On 1st October, Mr LI Gang, director of China’s liaison office in Macau, said China govt would introduce policies to support Macau’s economy. Without giving specifics, he said new policies would be similar to the July relaxation of transit visas which he reckoned should help Macau (DB: we think this policy did not help GGR). We think one potential policy is a slight relaxation of table cap for new casinos with lots of non-gaming. So MPEL's Studio City may get a 200 table quota instead of market’s expectation of 150. Importantly, we think China will not expand the Individual Visitor Scheme (IVS) as the govt reiterated that Macau can only handle 21m Chinese visitors (31m total visitors) per year," continued the analyst.

Tang added, "Over Oct 1-4th, Macau received 632k visitors (+2% yoy), of which 86% from China (+8% yoy). Both gth rates are sharply slower than Oct 1-3rd data (+10% yoy and +16% yoy respectively) as Golden Wk started on a Thurs this yr (Wed last yr) leading to an earlier ramp-up but likely weaker tail. Despite visitor gth, we believe most VIPs and top-tier premium mass were absent, leaving only low-end players this Golden Wk. As such, we expect Golden Wk GGR to fall c.30% yoy to MOP820-900m/day, though still 50% higher than Sept run-rate."

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 $15.51 yesterday.

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