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<Research> CLSA Cuts TPs on Macau Casino Stocks, Says Industry Entering Slow Lane with FCF Under Pressure
Recommend 13 Positive 27 Negative 17 |
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CLSA said in a research report that Macau's gaming industry is entering a slow lane, with overall GGR YoY growth expected to moderate due to a high base effect and a lack of new growth drivers. The industry is in a seasonal low in 2Q, coupled with the 39-day FIFA World Cup to be held from June 11 to July 19, which is expected to divert some visitors and may lead to a QoQ decline in industry EBITDA in 2Q. The broker slightly lowered its 2026 Macau GGR growth forecast by 1 ppt to 4% YoY, reaching MOP257.3 billion, and broadly cut TPs for multiple Hong Kong-listed stocks in the sector. CLSA noted that competition in the industry is intensifying. SANDS CHINA LTD (01928.HK) and WYNN MACAU (01128.HK) both raised their capital expenditure guidance in 1Q results, which may force MGM CHINA (02282.HK) and SJM HOLDINGS (00880.HK) to increase capital investment to maintain competitiveness. The broker expects total industry capex to surge from USD2.06 billion in 2025 to USD3.787 billion in 2026, resulting in lower industry free cash flow in 2026 and 2027 compared with 2025, putting free cash flow under pressure. Among individual names, GALAXY ENT (00027.HK) remains the broker’s top pick in the sector, given its best positioning in the industry, stable GGR market share, EBITDA margin and strong balance sheet. The TP was lowered from HKD47.4 to HKD41.4, with an Outperform rating maintained. For SANDS CHINA LTD (01928.HK), higher capex for renovation works at The Venetian Macao may weigh on short- to mid-term margins. Its TP was cut from HKD20 to HKD17.3, with an Outperform rating maintained. For MGM CHINA (02282.HK), intensified competition in Cotai poses potential upside risks to capex. The TP was reduced from HKD19.2 to HKD14.5, with an Outperform rating maintained. WYNN MACAU (01128.HK) plans to build a new luxury hotel project, Wynn Enclave, which limits future dividend growth potential. Its TP was slightly lowered from HKD5.7 to HKD5.6, with a Hold rating maintained. SJM HOLDINGS (00880.HK) is seen as most vulnerable to peers’ investment plans and may face market share erosion. Its TP was cut from HKD1.7 to HKD1.4, with an Underperform rating maintained. Melco Resorts & Entertainment Limited (MLCO.US) is expected to maintain a stable market share in Macau, while its overseas operations may still face pressure in 2Q26. CLSA is positive on its recent trademark acquisition, its USD500 million share buyback plan, and the potential resumption of dividends by end-2026. However, its forecast net debt-to-EBITDA ratio for 2026 remains high at 4.3x (versus 1.9x in 2019), which will limit the scale of share buybacks and dividend payouts. The TP was lowered from USD8.5 to USD6.1 per share. The rating was downgraded from Outperform to Hold. (ad/u) Auto-translated by AI This article was automatically translated by AI, the original language version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. More Details
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