Macau gaming-Further Estimate Reductions:Valuations Not Appealing

Recent disappointing GGR results post the opening of Galaxy phase 2, (hold-adjusted results were ~ MOP 580mn in the last two weeks), reinforces our belief that gaming demand in Macau will remain weak relative to the supply that is opening; that the yet to open casinos will disrupt market share more than they will create new demand through 2016.

    With only two weeks remaining in 2Q, we are reducing our EBITDA estimates for the quarter, as well as for the full year 2015 and 2016. The mean 2Q estimate declines ~ 7% and is now roughly 10% below consensus. For 2015 and 2016, our Macau estimates are also about 10% below the Street, but the outlier is LVS where we are 17% below.

    Our margin assumption is for a 100bps sequential compression and a 300bps YoY contraction in 2Q and in 2015. The anomaly that investors should be aware of particularly for WYNN in 4Q is the ability to begin shifting personnel expense on the peninsula into pre-opening expenses at WYNN Palace (~1,500 individuals or $10m-$15m/quarter).

    Based on the lower EBITDA estimates, our revised targets are: MGM $24, vs prior $25 (+24%), WYNN $108, vs. prior $112 (+5%), LVS $50, vs. prior $51 (-4%), and MPEL $18, vs. prior $19 (-6%).

    Fig. 1 summarizes our estimate changes. The largest declines for this year are for MPEL and WYNN (~5-8%). The reduction for LVS is ~3%, which already reflects our well below Street estimate.

    MGM

    Our estimate cut for MGM is mainly driven by lower VIP demand. The property’s mass segment has been holding up relatively well (est. $90mn/month after adjusting for table reclassification). For 2Q15, we assume that margins decline 160 bps from 2Q14. Our EBITDA estimate for 2016 is $40mn lower due primarily to a lower run rate in VIP revenue expectations.

    WYNN

    We are lowering WYNN’s EBITDA estimates for 2015 and 2016 as a result of lower mass revenue run rate (~$75mn/month vs. prior $92mn/month). We expect weakness in premium mass to continue to pressure EBITDA through 2016. Our margin estimates for 2Q-4Q15 are also lower (~80bps) as a result of lower mass revenues estimates.