Now is a good time for investors to position themselves for a potential share price rally of casinos with new hotels in Cotai Macau, according to Deutsche Bank, which reiterates a “Buy” on Sands China and Wynn Macau. “We’ve checked the Chinese Lunar New Year room availability for 23 casino hotels in Macau. Of these, 19 hotels are already fully booked in the three days from January 30 to February 1,” Deutsche Bank analyst Karen Tang said in a report. “This is much busier than October’s Golden Week four months ago when only nine hotels were fully booked a week before the holiday.” Using online booking tools, Deutsche Bank said it checked the room rates of 23 casino hotels in Macau. Despite having the largest room inventory among casino operators – about 12,800 rooms in total – all of Sands China’s hotels in Cotai are fully booked during the three day period, while Wynn Palace and Wynn Macau were fully booked from January 28 to February 4. “These advance booking trends seem much stronger than last year’s October Golden Week,” Tang said. Not only were more rooms booked this Lunar New Year, the lowest available rate of HK$1,882 is 25 per cent higher than the best deal available during Golden Week. Macau stocks tend to rise over the holidays as gross gaming revenue (GGR) improves sequentially, said Tang. Deutsche Bank said that over the past two years it noted three annual seasonal share price rallies, including a Lunar New Year rally in January and February, a summer rally in July, and one for Golden Week in October. In January 2015, when daily GGR rose 2 per cent month on month, Macau stocks rose 14 per cent on average that month. In February 2016, as GGR per day jumped 12 per cent month on month, Macau stocks rose 15 per cent on average in the following four weeks. For the mass market, the hotel survey by Deutsche Bank indicates strong visitation trends, especially for new properties Wynn Palace and Sands’ The Parisian, said Tang. For the VIP market, casinos and junket operators are prepping for Spring dinners and special celebrations in mid-February to welcome back the high rollers. “We therefore think the tail end of this Lunar New Year will be relatively long and strong,” said Tang. “Strong momentum since summer 2016, holiday seasonality and the new properties of Wynn Palace and Sands’ The Parisian all add to our confidence of a blockbuster Lunar New Year performance.” We therefore think the tail end of this Lunar New Year will be relatively long and strong Karen Tang, analyst Deutsche Bank For February 2017, Deutsche Bank expects GGR per day to rise 25 per month on month to 23 billion Macau patacas (HK$22.3 billion), implying a growth rate of 15 to 20 per cent year on year. For the fourth quarter of 2016, VIP gaming was up 12.7 per cent to 33.33 billion patacas, the first year on year increase since 2014, while the mass segment increased by 7 per cent to 27.1 billion patacas, according to Macau government statistics. “The rebound in VIP revenues in the fourth quarter shows Macau’s GGR should see a more balanced structure,” said Johnson Cheung, an analyst from China Galaxy International. “We believe that the GGR recovery should extend into 2017 and that year-on-year comparisons should be favourable in the first half of 2017.” However, analysts also see potential risks in Macau’s gaming industry. These include a slow GGR recovery and regulatory changes, especially with regard to the overseas purchase transaction limit on UnionPay cards, said Tang. Cheung said issues such as stricter controls on Chinese yuan exchange and UnionPay can be negative for investor sentiment, hence the sector is likely to be range bound in the near term, pending the Lunar New Year and more concrete evidence of a recovery. “We continue to favour Galaxy Entertainment and remain cautious on Wynn Macau,” added Tang.
