Xiaomo: Weak demand for gaming in Macau is expected to be preferred, and Galaxy Entertainment (00027) has a target price of HK$45

The Zhitong Finance App learned that J.P. Morgan Chase released a research report saying that Macau's weak gaming demand in September was in line with the reservation's expectations. The bank maintained the industry's preferred Galaxy Entertainment (00027), with a target price of HK$45.

The bank estimates that Macau's total gaming revenue (GGR) for the first 20 days of September was MOP 12.2 billion, or MOP 610 million per day, meaning that the average daily revenue rose slightly by 5% on a weekly basis to MOP 614 million last week, partly benefiting from the high win rate at the VIP room. However, the average daily revenue from the beginning of the month to date is 14% lower than MOP 706 million in August, which is roughly in line with past seasonal performance. It also means that it is roughly the same year over year, slightly lower than the low single-digit growth expected by the bank. However, the bank believes that the data does not reflect any substantial change in basic demand, and it is to be expected that demand is still weak.

Furthermore, the bank believes that investors should take a cautious approach to this year's Golden Week data, which has a big impact on holiday differences and base figures. The bank expects Golden Week to record a moderate decline, while gaming revenue in October fell 2% to 4% year over year. Therefore, the bank believes that the key to stock selection is not whether the data shows slight negative growth, but whether it shows stable or further deterioration in demand; if there is a decline of more than 5%, it may suppress market sentiment; if there is positive growth, it may lead to a short-term rebound.

The bank mentioned that the current market focus is not on whether Macau gaming stocks are cheap, but on what factors can drive valuation increases. In the absence of policies or a catalyst for significant improvement in demand, the bank remained selective; the industry preferred Galaxy Entertainment, followed by Wynn Macau (01128), Sands China (01928), MGM China (02282), Melco Entertainment (US.MLCO), Melco International (00200), and Aobo Holdings (00880).