UBS cuts Wynn, MGM estimates as Macau VIP revenue slows

UBS has cut its estimates for Macau earnings growth for MGM Resorts and Wynn Resorts because of slowing VIP growth. The firm has also downgraded its rating on Las Vegas Sands’ stock to neutral from buy.
UBS says that although the mass market is growing strongly, with growth rates running at about 30 percent year on year, the VIP sector still accounts for between 65 percent to 70 percent of the whole. VIP revenue has been flat so far this quarter, with junket operators becoming more cautious and this has lead to less velocity of capital and liquidity in the system. The slowdown is related to the greater macro-economic picture in China and not the current headlines concerning the clampdown on the use of China UnionPay terminals in Macau, UBS said.
As a result of the pullback in the VIP market, UBS has cut its overall target for Macau GGR growth this year to 10 percent from 14 percent. It follows others such as Deutsche Bank, Wells Fargo and Nomura, which have all reached similar conclusions.
UBS now sees Wynn’s EBITDA from Macau at $1.47 billion in 2014, down from $1.53 billion, for a growth rate of 11 percent, down from 15 percent estimated previously. Wynn gets about 45 percent to 50 percent of its EBITDA from VIPs.
For MGM Resorts, which has a 34 percent to 40 percent exposure to VIPs, the estimate for Macau EBITDA has been cut to $1 billion, down from $1.04 billion previously. That implies growth of 18 percent down from earlier estimates of 22 percent.
UBS said Las Vegas Sands, with its high exposure to the higher margin mass market, is the most defensive way to play Macau at present, however, its valuations remain vulnerable.