Share prices of most U.S. based casino operators declined during the trading session on Jun 3, 2014 with Macau gaming revenues for the month of May falling short of analyst expectations.
The Gaming Inspection and Coordination Bureau announced that gross gaming revenues for Macau increased only 9.3% to $4.1 billion in May. The May growth rate was lower than gross gaming revenue increase of 10.6% in the month of April and the lowest since February. Moreover, the number fell short of analysts’ expectation of 13.0% to 15.0% growth, according to media reports.
Wynn Resorts Ltd. (WYNN - Analyst Report), Las Vegas Sands Corp. (LVS - Analyst Report), MGM Resorts International (MGM - Analyst Report) and Melco Crown Entertainment Limited (MPEL - Snapshot Report), declined following the release of the data. A few Hong Kong listed companies that experienced a major decline were Galaxy Entertainment, SJM Holdings Ltd. and Sands China Ltd.
Reason behind Tempered Growth
The moderate growth rate for the month can be attributed to increased government regulations for gamblers. At the beginning of the month, the government of China seized UnionPay cards, which were being used to illegally siphon off billions of dollars from mainland China to Macau. (Read more: Macau Crackdown Fears Cloud Casino Stocks). VIP gamblers who brought in large amounts of money had to mainly bear the brunt of the heightened regulations.
Two-third of the Macau revenues comes from VIP gaming. A few analysts warned that if the increased regulations were the reason behind the moderate growth, then possibilities of a further downside cannot be ruled out.
Another key concern is the impending smoking ban at Macau casinos scheduled to be imposed toward the end of this year. According to the Macau Daily Times, the ban will come into effect on Oct. 6, 2014. In such a scenario, gamblers will have to shift to designated areas for smoke breaks, which means fewer or slower games and thereby less revenue.
Given the current scenario, Wynn Resorts and other leading casino companies could expect softer-than-anticipated revenues for the current quarter, according to The Street.
However, the game is not completely over. Despite a few drawbacks, there are some positives to look forward to. Over the long-term, analysts remain positive as this gambling hot spot continues to expand. Though there are no casino openings scheduled for this year, Wynn Resorts, MGM Resorts and Las Vegas Sands are all set to make multibillion dollar openings by 2016.
Moreover, the development of facilities for entertainment, retail and convention centers would give visitors an added reason to visit Macau. Improving infrastructure should shorten the journey to Macau from the Chinese mainland and thereby drive visitation.
Meanwhile, according to the China Federation of Logistics and Purchasing, Chinese manufacturing grew for the third consecutive month in May, which reflects that the slowdown in the world’s second-largest economy is stabilizing.
While Wynn Resorts and MGM Resorts carry a Zacks Rank #2 (Buy), Melco Crown Entertainment and Las Vegas Sands Corp. carry a Zacks Rank #3 (Hold).