Macau operators get rating upgrade

Sanford C Bernstein upgraded both Galaxy Entertainment Group and Sands China’s ratings in a Friday note.

Macau.- Macau casino operators Galaxy Entertainment Group and Sands China had their ratings upgraded by brokerage Sanford C Bernstein. The companies’ grades was adjusted after a re-consideration of their current valuation and impending upside from capacity expansion in 2020.

According to Bernstein analysts, even as GGR is expected to shrink from 14% (2018) to 3% this year, there is a positive future for Galaxy and Sands in 2019. In a Friday note, they explained: “On a longer-term fundamental view, Galaxy now looks relatively inexpensive, especially factoring in Phase 3 and 4 developments of Galaxy Macau.”

The note, signed by analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu and titled “Gaming 2019 Outlook,” adds: “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.”

Furthermore, they explained that Galaxy “stands to have outsized growth over the long run” as it completes Galaxy Macau Phases 3 and 4.

“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,” Bernstein analysts said about Sands China and added: “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.”