JPMorgan Chase & Co. has cut its share price targets on Macau gaming plays, citing potential further headwinds for the sector amid rising costs and reduced revenues.
The brokerage estimates that Macau’s gambling revenue will slide 18 percent this year, and that the industry’s earnings before interest, tax, depreciation and amortization could drop 21 percent, the Hong Kong Economic Journal reported Tuesday.
The sector is now in a cyclical downturn, and the trend may reverse only when new casino resorts open later this year and stimulate demand, JPMorgan noted.
The US bank is now of the view that casino plays may suffer another 15 percent slide in their share prices on average before they reach valuations worth some bottom-fishing activity.
It has lowered Galaxy Entertainment Group’s (00027.HK) target price to HK$44.5 from HK$60, and that of Sands China (01928.HK) to HK$36 from HK$52.5, and MGM China Holdings (02282.HK) to HK$17.5 from HK$28.
Among others, Melco International Development (00200.HK) saw its target price being cut to HK$14.5 from HK$20, SJM Holdings (00800.HK) to HK$10 from HK$16, and Wynn Macau (01128.HK) to HK$18.5 from HK$29.5.
JPMorgan has a “buy” rating only on Galaxy. Wynn and SGM were downgraded to “underweight”, while Sands China and MGM China were cut to “neutral”. Melco, however, was upgraded to “neutral”.
Apart from falling revenues, especially in the VIP segment which has taken a knock due to China’s anti-graft campaign, casino operators are also facing mounting costs.
Labor groups are urging gaming companies to raise wages to help employees cope with higher inflation, which is partly a result of the buoyant performance of the gaming sector in the past.
Sands China has said that it is offering a 5 percent wage hike to 26,000 eligible workers from this month.
Translation by Vey Wong [Chinese version中文版]
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