Financial services firm Morgan Stanley has upgraded its expectations for Macau’s gaming stocks, predicting 2017 gross gaming revenue of +12% on the back of stronger than expected performances from Melco Resorts and Wynn.
Noting that Macau gaming stocks have underperformed in 2Q on the Hang Seng index every year since 2012, other than 2013, analysts Praveen Choudhary, Alex Poon and Thomas Allen note that revenues have comfortably exceeded predictions in 2017 with annual GGR now upgraded from +9% for the year to +12%. Growth in 2018 has also been upgraded from 6% to 9%.
Notably, Morgan Stanley’s price targets for four of the six concessionaires – Wynn, Melco, SJM and Galaxy – have risen by between 25% and 32%.
“Melco Resorts is our top pick, after Wynn Macau stock rallied 36% YTD: We believe the concerns about cannibalization, market share loss to Palace, and smoking ban (delayed) are behind. MLCO’s valuation looks more attractive at 10x EV/EBITDA for 2018e,” it said in a weekend note.
“We stay OW on Wynn and Galaxy: For Wynn, we project 38% EBITDA growth in 2017, with Palace continuing to ramp up through 2017. Galaxy offers attractive valuation (11x 2018e EV/EBITDA) and stable EBITDA growth (+18% in 2017).”
Morgan Stanley has raised Wynn’s price target by 32%, Melco by 31%, SJM by 26% and Galaxy by 25%.
