Investment bank Morgan Stanley raised its expectation for Macau revenue growth in 2017 on new casino openings and better infrastructure, but warned of risks from further Chinese government crackdowns on graft.

Gross gaming revenue growth(GGR) has been raised to 10 per cent in 2017 from its previous estimate of 2 per cent, according to Morgan Stanley’s latest report.

“We believe the Macau cycle has turned and 2017 could show 10 per cent GGR and 13 per cent ebitda growth, the first in four years,” said Morgan Stanley equity analysts including Praveen Choudhary and Alex Poon. “And we see both mass and VIP growth tracking better than expected.”

The opening of Wynn Palace and Sands China is expected to continue driving revenue growth and ebitda in the first half of 2017, they said.

Wynn Palace and the Parisian Macau opened in August and September 2016 respectively. In August, gaming revenue in Macau saw positive growth for the first time in over two years, following 26 consecutive months of decline. In November, the revenue rose 14.4 per cent to 18.8 billion Macau patacas. It was the fourth straight month of year on year revenue growth and the first double-digit growth in 31 months.

Morgan Stanley analysts said the VIP segment fluctuates with China’s property performance and liquidity conditions but they expect mass market revenue can sustain high single-digit growth in the medium term driven by improved infrastructure and increased spending per visitor.

Infrastructure improvements in Macau will be seen in coming years. The Taipa Ferry Terminal is expected to be completed in the first half of 2017, while the Guangzhou Rail Link extension to Hengqin and Hong Kong-Zhuhai-Macau Bridge are expected in 2018, and Macau light rail in 2019.

“These infrastructure improvement will drive higher visitation and potentially higher spending per capita,” the Morgan Stanley analysts said.

A similar infrastructure enabled boost was seen in Guangdong province in 2010 and 2011, when domestic tourism revenue growth spiked to 24 per cent and 27 per cent respectively after the opening of the Wuhan to Guangzhou high speed train link which cut travel time from 11 hours to 3 hours.

The number of Chinese visitors to Macau grew by 20 per cent and 22 per cent respectively over the same period, outpacing growth of non-Chinese visitors to Macau.

Morgan Stanley said although positive estimate revisions could continue in the near term, there are also risks in the industry.

“We believe the Chinese government will continue to monitor capital outflows and tighten when necessary,” said Choudhary. The fall in China’s foreign exchange reserves accelerated in November, shrinking by US$69.1 billion to US$ 3.052 trillion, the largest monthly drop since January, according to data released by the People’s Bank of China.

“Meaningful depreciation in Chinese yuan against the US dollar could hamper Macau spending per capita, affecting both VIP and premium mass [markets], and also triggering more capital outflow control measures,” the analysts said.

Other possible negative factors include smoking bans and intensified anti-graft measures, they added.

Morgan Stanley expects the yuan to depreciate 5 per cent in 2017 and 2 per cent in 2018.

The investment bank is more bullish on Galaxy Entertainment Group due to its more attractive valuation, differentiated productand enhanced yield.

Wynn Macau is also recommenced by Morgan Stanley. “We believe the combination of about 30 per cent forecast ebitda growth in 2017 and 4.5 per cent dividend yield for full year 2016 will drive Wynn Macau to outperform in 2017,” the analysts said.

Fortunes seen turning bright for Macau




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