Wells Fargo: remain neutral

Macau’s gaming sector registered a slow start in revenue in the beginning of June, according to Wells Fargo analysts, as the local government is maintaining its gross gaming revenue prediction of a 13.5 per cent decrease for the year.
The analysts are keeping their predictions for a decrease in growth in June of between 3 and 8 per cent year-on-year, adding that they don’t expect a recovery soon, as the ‘huge liquidity bubble of the past five years continues deflating’. Although the firm has seen stocks for gaming operators Las Vegas Sands Corp. (LVS), Melco Crown Entertainment (MPEL) and Wynn Resorts Limited (WYNN) increase 12 per cent this year, Wells Fargo believes it is still ‘too early’ to expect a stabilization of the territory’s economy.
The analysts said that average daily revenue registered in the first five days of June was MOP510 million (US$63.7 million), below their estimates of returns of between MOP535 million and MOP560 million. The same report also predicts junket volumes will remain ‘soft’ in 2016, but that the increase in credit could lead to growth in junket volume year-on-year, as happened at the end of 2015.
Conservative estimates
Wells Fargo has dubbed the estimate of a decrease in gross gaming revenue of 13.5 per cent in 2016 by Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac, as being in line with the local government’s generally ‘conservative’ yearly forecasts.
The analysts believe the government estimates for MOP200 billion total yearly revenue, are based on daily revenue of MOP507 million for the next seven months, after gaming revenues fell 12 per cent in May; a more dire prediction than the 4.5 per cent decline in 2016, and 10 per cent sequential decline the firm states as being the consensus for the year.
Summer room rates to increase
When it comes to room rates, the group saw a small 0.2 per cent growth month-to-month as Galaxy Entertainment Group and Melco properties showed a 12.7 per cent and 5 per cent decrease month-to-month respectively, while Sands’ properties registered a 3.3 per cent decrease. Wells Fargo expects to see 0.3 per cent growth in July to an average HK$1287 (US$165), and a more optimistic 3.3 per cent increase in August to HK$1287, the report stated.