[ET Net News Agency, 3 January 2020] Morgan Stanley said Macau stocks outperform when
Macau GGR growth is positive, EBITDA growth is accelerating and earnings estimate
revisions are positive. Yet it is difficult to predict any of these for 2020.
Instead, the research house focused on two things that are certain and known, capacity
expansion and cheap valuation. It said stocks outperformed six months before opening.
The next big expansion will be in 1H 2021 (Grand Lisboa Palace with 2,000 rooms and
Galaxy Phase 3 with 1,500 rooms). Hence, it upgraded SJM mainly on upcoming capacity. Wynn
could outperform Galaxy in 1H 2020 due to the opening of West Casino, while 2H could favor
Galaxy due to the opening of Phase 3 in 1H 2021.
As for a valuation, Morgan said stocks are trading at 11.7x 2020 EV/EBITDA and 8% FCFE
(free cash flow to equity) yield (cheaper than the long-term average, despite the better
quality of earnings).
Morgan upgraded the Macau gaming sector's industry view to "attractive" from "in-line".
It also revised the ratings and target prices for the casino operators as follows:
Name
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MGM China (02282) Overweight HK$16.50 to HK$17.00
SJM Holdings (00880) Equal-Weight to Overweight HK$8.70 to HK$10.30
Melco Resorts (MLCO) Overweight US$27.00 to US$28.00
Sands China (01928) Overweight HK$41.50 to HK$44.00
Wynn Macau (01128) Equal-Weight HK$18.00 to HK$18.50
Galaxy Ent (00027) Equal-Weight HK$55.00 to HK$57.00
(KL)