Share price of leading casino companies, Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN) tumbled after analysts at FBR Capital Markets cut their target prices.
The target price was attributed to a decline in gambling revenues in November and the first week of December. The weakness is expected to persist in the rest of December as well. These companies earn a better part of their revenues from Macau, the only destination in China where gambling is legal.
While the target price of Las Vegas Sands was reduced by $7 that of MGM Resorts and Wynn Resorts was lowered by $5 and $30, respectively. This is not the first time that analysts have lowered their target price for these companies. The slowdown in gambling revenues since June this year has compelled analysts to lower their expectation in the past as well. After declining in single digits for three consecutive months beginning June, Macau revenues declined 11.7%, 23.2% and 19.6% in Sep, Oct and Nov 2014, respectively. In fact, Macau gaming regulators believe that 2014 will be the first year of disappointing Macau gaming data results.
This slump reflects a slowdown in Macau as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau. Restrictions like limiting the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Moreover, tighter restrictions on visas are further worsening the situation. Meanwhile, the political unrest and pro-democracy demonstrations in Hong Kong are compounding woes.
Unfortunately, the worst is not yet over with analysts expecting further declines in Dec 2014 and 2015. Per a few analysts, high VIP rollers are unlikely to visit Macau ahead of Chinese President Xi Jinping who is supposed to visit Macau this month. Jinping imposed restrictions on the region after it was found that vast sums of money were illegally transferred from mainland China to Macau. Melco Crown Entertainment Limited (MPEL) is another company that is bearing the brunt of these macro headwinds.
Moreover, given the timing of the Chinese New Year which is on Feb 19, 2015 versus Jan 31 in 2014, some analysts expect a double-digit decline in the first month of the New Year as well. In fact, no improvement is expected until the second quarter of 2015.
The companies are trying their best to bolster revenues. We on our part can only wait and see how long the slowdown in Macau lasts and impacts the companies operating in the region.
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