While Macau stocks underperformed the Hang Seng Index in 18H1, Morgan Stanley analysts believe Macau casinos will “meet or beat” earning estimates for the full year 2018.
The underperformance of the HSI was “partially explained by China’s macro slowdown, World Cup impact, and lower win rate. However, most of the companies should be able to meet or beat consensus 2018 earnings estimates,” said the brokerage.
Looking at 18Q2, MS said they expect Macau property EBITDA to decline more than 6 percent quarter-on-quarter.
“EBITDA declined more than revenue owing to higher labor cost / annual bonus, lower win rate, and GGR that was weaker than the market expected in the last two months.”
SJM and Galaxy should report the smallest EBITDA decline while MGM should see the most, noted Morgan Stanley.
The brokerage has selected Galaxy and Wynn as its top picks in the near term, due to higher relative EBITDA performance in Galaxy’s case and confidence in its ability to meet 2018 estimates and increase its dividend in Wynn’s case.
Over the medium term, MS said they prefer MGM China, even though it reported the largest QoQ decline and was weakest amongst peers in 18Q2.