Macau Could See Further Slowing

Meanwhile MGM and other casino names are showing signs of head-and-shoulders tops.  Full disclosure I am long LVS as a long standing drawer pick and short MGM here. (click chart to enlarge)

Macau is the growth engine for the global casino industry, and revenue growth for casinos there seems to be slowing, Wells Fargo said in a report.

That could affect sales and earnings for world's largest casino company, Las Vegas Sands (LVS), and rivals Wynn Resorts (WYNN) and MGM Resorts International (MGM), which all have properties in Macau. It could also hurt Hong Kong-based Melco Crown Entertainment (MPEL), which competes with the Vegas casinos in Macau.

Wells Fargo analyst Cameron McKnight is in Macau meeting with company executives this week. McKnight said in a Monday report that, based on those meetings and channel checks, he expects May revenue for Macau casinos will rise 10% to 14% compared with the same month a year ago. That's well below his earlier forecast for 14% to 16% growth.

"We remain positive on the longer-term Macau secular growth story; however, 2014 could be choppy due to a potential slowdown in VIP (gambling revenue) driven by decelerating credit growth and a softer micro environment," McKnight said in the report.

High rollers, known in the industry as VIP gamblers, borrow money from junket operators who bring them to the gambling hot spot on China's southern coast. They do that to get around limitations China sets on how much outside cash gamblers can bring in.

The Chinese government has accused these junket operators of being involved in illegal money laundering, and is cracking down on them. That could lead to fewer VIP gamblers visiting Macau.

Additionally, China's hot growth has cooled in recent quarters, which could lead to fewer middle-class Chinese visiting Macau, the country's only legal casino gambling region.

McKnight said Sands remains the bank's top pick because it has higher exposure to the "mass market" segment, mainly middle-class tourists from inland China. Sands shares were down more than 2% in afternoon trading in the stock market today, Tuesday.

Sands and Wynn both have a 91 IBD Composite Rating, meaning they've outperformed 91% of all stocks in recent quarters on key metrics such as sales and profit growth.

Wynn was down about 2% too. MGM Resorts, the No. 2 casino company by annual revenue, slid 1.5%. Melco Crown dropped more than 4%.

Courtesy of IBD

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