Brokerage Sanford C Bernstein has upgraded its rating for leading Macau operators Galaxy Entertainment Group and Sands China, pointing to their current valuation and impending upside from capacity expansion in 2020.
In a Friday morning note titled “Gaming 2019 Outlook”, Bernstein analysts painted a relatively positive picture of Macau’s prospects for the year ahead, despite GGR growth tipped to slow from 14% in 2018 to around 3% over the next 12 months.
That growth will be driven primarily by the mass market, which the brokerage says puts Galaxy and Sands ahead of the game.
“On a longer-term fundamental view, Galaxy now looks relatively inexpensive, especially factoring in Phase 3 and 4 developments of Galaxy Macau,” said analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu of the recent dip in global gaming stock prices.
“Galaxy continues to improve its Mass operations at Galaxy Macau and StarWorld while maintaining a leadership position in VIP. While the VIP segment is most at risk of considerable slowdown over the next 6 to 12 months, over the medium term, the key value driver is operating leverage improvement and improving business mix which will enhance margins.
“Over the long run, with the future development of Galaxy Macau Phases 3 and 4, the company stands to have outsized growth.”
Regarding Sands China, Bernstein said, “We continue to look favorably upon Sands China’s management team, product positioning and strategy focused on Mass market, a strong balance sheet and hefty dividends.
“Redevelopment of Sands Cotai Central and upgrades at the Parisian will help boost its high margin Premium Mass business. The long-term (beginning in 2020) growth story from hotel suite capacity expansion and the Londoner redevelopment is evident. Sands China’s valuation look attractive for a stock that consistently trades at a premium to Macau gaming stocks and is now trading well below its historical average.”
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