Macquarie Says It's 'Too Early To Call The Bottom' On Macau, Recommends MGM

Macau's gross gaming revenue (GGR) fell 36 percent year-over-year in August to MOP 18.6 billion, marking the fifteenth straight monthly decline and prompting Chad Beynon, Macquarie Capital's gaming analyst, to state that it is "too early to call the bottom."

Some Numbers

Beynon continued by pointing out that July's GGR also came in at MOP 18.6, while June's GGR of MOP 17.4 billion was in fact the lowest recorded reading since November 2010.

Meanwhile, Macau's second-quarter GDP reading showed a 26 percent decline, marking the lowest level since 2011. In addition, China's devaluation of its currency puts "pressure" on casino operators from a purchasing power standing and regulation.

Related Link: Macau's Losing Steak Extends To 15 Months

Other Negative Catalysts

Other gaming tailwinds include "self-inflicted visitation reductions due to anti-corruption campaigns, Union Pay seizing (customer liquidity), VIP room closures, pawn shop raids, fraudulent bank card use arrests," in addition to ongoing anti money laundering campaigns and operators moving their business direct – which creates high risk for bad debts.

With that said, Beynon is now projecting Macau's September GGR to fall 29 percent. The analyst is also estimating Macau's third-quarter GGR to fall 33 percent, which actually marks an improvement from the 37 percent drop in the second quarter.

There Are Positives, However

Beynon also pointed out that recent positive events and catalysts do exist. They include: recent margin stability of casino operators despite falling revenues, junket consolidation, Macau Studio City scheduled to open on October 27, lower marketing costs, rooms going to mass players, liberalization of transit visas and the government "backing off" of the proposed smoking ban.

Finally, Beynon stated that non-gaming activity is "red hot," which offers investors an opportunity to play MGM Resorts International (NYSE: MGM) on relative value.

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