Macquarie revises down profit estimates for Macau operators

In a note to clients, Macquarie has revised down its profit estimations for all the Macau gaming operators it follows by 20 percent, saying that market consensus on Macau’s performance is too optimistic.
The Australian bank said that new openings in Cotai could lift visitation by 13 percent annually, but that it did not believe that increased visitation would translate into a comparable rise in revenue.
Macquarie cut Sands China’s share price by 48 percent and reduced its estimation for profits in 2015 by 28 percent and in 2016 by 35 percent. Galaxy profit estimations for next year were reduced by 22 percent and 32 percent in 2016, with share price decreasing 49 percent. Macquarie predicted that Wynn Macau will suffer a correction of 25 percent in its expected profit for 2015 but increased its net income by 22 percent in 2016 to accommodate the Cotai ramp up. Melco Crown Entertainment was the only stock the bank rated as ‘Buy’, yet it still expects profits to decrease by 31 and 25 percent against current estimates, with target price cut by 42 percent.
‘Consensus may be overlooking the negative operating leverage from structural labour cost inflation, especially for new openings in the next three years’, it said.