CBRE Equity Research picked up coverage again on Galaxy Entertainment Group Limited (OTCPK:GXYEF), Melco Resorts & Entertainment Ltd. (NASDAQ:MLCO), and SJM Holdings Limited (OTCPK:SJMHF) as part of a deeper look at the Macau gaming industry.
Analyst John DeCree and his team tagged Melco Resorts (MLCO) and Galaxy Entertainment (OTCPK:GXYEF) with Buy ratings and said they were the preferred options over SJM Holdings (OTCPK:SJMHF), which was started at Hold.
“We see the shares of MLCO as one of the more attractive ways to invest in the sector based on current relative valuation, with the shares trading at 8.2x FY24 EBITDA vs the Macau Group average of 9.9x and the HK-Listed Macau Group Average of 11.3x. For investors that prefer a Macau pureplay, Galaxy remains the stock of choice, with its fortress balance sheet, long-term growth pipeline in Macau, and a strong operating track record. Meanwhile, we are more cautious on the shares of SJM, with its high debt burden and an arduous path to deleveraging given the significant reduction in VIP volumes, substantially reduced gaming capacity, and a longer expected ramp at Grand Lisboa Palace.”
Macau casinos generated gross gaming revenue of $15.21B patacas ($307M) in June to represent 514% year-over-year growth. While the return of live performances in Macau and the four-day Dragon Boat Festival holiday were cited as traffic drivers during the month, the GGR mark missed the consensus estimate of analysts for a 530% year-over-year increase and was 2.3% lower than the GGR generated in May. That sequential slowdown could raise concerns about a stumbling recovery in Macau and hit the share prices of the casino operators when trading resumes on Monday. However, JPMorgan noted in advance of the monthly revenue report that the long-term monthly sequential change from May into June averaged a 14% decline for the years through 2007 to 2022 (excluding the lockdown year of 2020). For the first six months of 2023, Macau gross gaming revenue was up 205% year-over-year to $80.14B patacas ($9.93B). A tally that is still far short of the pre-pandemic $149B patacas generated in 2019 for the same time period.
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