Casino Notes: Concerns Over Decelerating Chinese Economy And Yuan Devaluation Weighs Heavy On Casino Stocks

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Last Thursday saw a massive sell-off in global equities amid concerns that decelerating Chinese economy may slower global growth. Casino stocks were hit hard amid continued uncertainties pertaining to Macau. Meanwhile, gross gaming revenues in the world’s largest gambling hub plunged 35% in July and the data for the first two weeks of August suggests continued weakness. On that note, we discuss below the developments related to the casino companies over the last week or so.

Las Vegas Sands

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Las Vegas Sands’ (NYSE:LVS) stock is down around 15% so far in August. This can be attributed to continued weakness in Macau and a decelerating Chinese economy. It must be noted that casinos in Macau rely heavily on Mainland China visitors and slower growth is a cause of concern. Having said that, LVS’ reliance on VIP gaming is very low as it makes most of its profits from mass-market gaming and non-gaming activities. Given that most of the pain in Macau is on the VIP front, LVS is safer as compared to its other peers such as Wynn Resorts, which rely heavily on VIP gaming.

However, there still remains a cause of concern even for Macau mass-market gaming in the near term. The devaluation of Yuan currency is likely to add woes to the casino operators. Most of the gaming bets in Macau are in Hong Kong Dollars and the recent devaluation of Yuan has made betting for Chinese players more expensive. [1] This may weigh over LVS’ mass-market revenues in the near term.

  • Trefis has a $56 price estimate for Las Vegas Sands’ shares, translating into a $45 billion market cap. This is roughly 15% above the market price of around $47 seen over the week.
  • We estimate the company’s 2015 revenues to be around $13 billion for an earnings per share of $2.73, compared to a consensus of $2.61, according to Reuters.

Wynn Resorts

Wynn Resorts (NASDAQ:WYNN) stock has plunged around 20% in August for similar reasons. The steeper fall can be attributed to Wynn’s heavy reliance on Macau gaming, which accounts for around half of Wynn’s stock value, according to our estimates. Given the pain, especially on VIP front, Wynn has lowered minimum bets and moved more tables from VIP to mass-market gaming in recent quarters. While there remains near term concerns over Macau gaming, the industry outlook still remains positive. We continue to believe that an increase in visitation from Mainland China and continued growth in income levels will fuel casino demand in Macau. If the recovery is steeper than estimated, it will result in more than 10% upside to our price estimate for Wynn (see – Wynn Resorts: What Happens If Recovery In Macau Gaming Comes Sooner?).

  • Trefis has a $118 price estimate for Wynn Resorts’ shares, translating into a $12 billion market cap. This is roughly 45% above the market price of around $82 seen over the week.
  • We estimate the company’s 2015 revenues to be around $4.6 billion for an earnings per share of $3.91, compared to a consensus of $3.31, according to Reuters.

MGM Resorts

MGM Resorts (NYSE:MGM) derives most of its revenues from its U.S. operations and has limited exposure to Macau gaming. This played well for the company in its recent quarterly earnings, which came out better than the Street estimates amid a pickup in the Las Vegas market. MGM’s stock has moved up around 5% so far in August, defying the broader market trends and Macau concerns. This can be attributed to higher demand for its non-gaming operations at the Las Vegas Strip. For MGM, hotel operations are of key importance and account for more than 35% of its stock value, according to our estimates. However, in the medium to long run, we believe that MGM’s hotel as well as casino operations will drive the growth, reflecting benefits from its new property in Cotai (see – Domestic Hotel And Macau Casino Operations Will Drive MGM’s Future Growth).

  • Trefis has a $25 price estimate for MGM Resorts’ shares, translating into a $14 billion market cap. This is roughly 10% above the market price of around $22 seen over the week.
  • We estimate the company’s 2015 revenues to be a little under $10 billion for an earnings per share of $0.46, compared to a consensus of $0.48, according to Reuters.

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Notes:
  1. Weak yuan stacks odds against Macau’s flagging casino revenues, Reuters, Aug 20, 2015 []