Gaming stocks Wynn Resorts (WYNN), Las Vegas Sands (LVS), MGM Resorts (MGM) and Melco Resorts & Entertainment (MLCO) got a boost on the stock market Wednesday after Macau gaming revenue came in above views.
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Revenue in December jumped 16.6% to 26.47 billion patacas ($3.3 billion), above the 10%-15% growth analysts polled by Reuters expected and the second straight month that growth beat consensus expectations. Revenue for the full year was 302.85 billion patacas ($37.6 billion), which represents 14% growth.
Union Gaming analyst Grant Govertsen said the beat came despite an unfavorable calendar, which had one fewer Friday than the same month a year earlier. But he also said 2018 could have been even better.
"The entire year ended at +14.0%, or broadly in line with our initial projections for the year (mid-teens) albeit with an even better mix of mass business relative to VIP than originally expected," Govertsen said in a research note. "After adjusting for the three one-time events that tripped up GGR in September and October, GGR for the year would have been at least 100 bps higher, or ~15% growth" for the year.
Gaming Stocks, Macau Outlook Mixed
Shares of Wynn Resorts surged 5.55% on the stock market today, nearly retaking their 50-day average. Las Vegas Sands was up 4.05% and Melco Resorts & Entertainment gained 5.7%, with both back above their 50-day lines. The more U.S.-focused MGM Resorts added 3.8%.
Gaming stocks are starting the new year strong after selling off in 2018, as worries over China's economy weighed as well as warnings about Las Vegas.
Macau casino executives had touted the potential benefits of the new Hong Kong–Zhuhai–Macau Bridge, which opened in October. But while Macau visitation numbers have surged, with an increase of 15.3% in November alone, this has not translated to casino foot traffic. Analysts say true visitation numbers are actually increasing modestly.
Union Gaming's Govertsen is expecting slower revenue growth in 2019.
"We are maintaining our full-year 2019 growth expectations in the mid-single digits, or broadly speaking, in line with GDP," the analyst said. "While the macro remains uncertain, Macau has remained resilient, particularly with respect to the mass market segment."
With the Chinese New Year coming on Feb. 5 and running until Feb. 19, Govertsen said he would "not be surprised" if February was up in the mid/high single digits after January was flattish. He forecast a 4% increase to gross gaming revenue in Q1.
China Economy Could Hit Gaming Stocks
While the number of lucrative VIP visitors is said to have rebounded in December after several weak months, there are fears the slowing Chinese economy and a prolonged trade war between the U.S. and China could hurt sentiment among high-rollers.
And economic figures for December suggest the world's second largest economy is weakening as a lull in domestic demand and U.S. tariffs take their toll.
The Caixin manufacturing purchasing managers' index, which mainly tracks China's private factories, fell from 50.2 in November to 49.7 in December. This was the first time since May 2017 it slipped below the 50-point mark, which separates expansion from contraction.
It comes after the country's official manufacturing PMI, which focuses on state-owned groups, slipped to 49.4 in December. This was the first time that metric came in below the 50 mark since July 2016.
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The post Gaming Stocks Get Boost From Macau, But This Risk Looms appeared first on Investor's Business Daily.
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