The long hot streak that Chinese gambling enclave Macau has had may be cooling, JPMorgan Chase said, as growth in the world's top gaming destination slows.
Shares of MGM Resorts International (MGM), Las Vegas Sands (LVS) and Wynn Resorts (WYNN) took a big hit early Wednesday on the report.
In a client note, JPMorgan analyst Kenneth Fong downgraded MGM China, a unit of Las Vegas-based MGM, to neutral from buy, and recommended "that investors trim positions," in Macau casinos generally.
Fong said the market is starting to factor in more aggressive growth assumptions than may be warranted for Macau, the only legal casino gambling region in China.
The three largest Las Vegas casino marked cards operators get the bulk of their revenue from Macau, where they compete with Hong Kong's Melco Crown Entertainment (MPEL) and others.
MGM shares slid 2.5% in heavy trading in the stock market today in early afternoon.
Sands, the world's largest casino company, lost 2.4% and Wynn 2.2%. Melco Crown fell 3.8%
Gambling revenue in Macau, a special district on China's southern coast across the straits from Hong Kong, rose to about $45 billion last year, seven times that of Las Vegas.
Wells Fargo Securities analyst Cameron McKnight said in a client note Tuesday he believes the macroeconomic environment in China "remains generally supportive of growth."
But he added that Chinese credit growth fell 25% year to year in December and "We believe credit growth is one of the many driving factors to gaming growth in Macau and a continued deceleration could potentially cheat poker weigh on mid-2014 results." McKnight had outperform ratings on Sands, Wynn and Melco Crown, and a market perform rating on MGM.
RBC Capital Markets analyst John Kempf on Monday told clients gross gaming revenue in Macau so far in January was up about 17% year over year. That could slow next month though.
The Chinese New Year celebration begins Jan. 31 and runs to Feb. 10, and Kempf said during the holiday last year, "mass table revenue was the lowest of any month in 2013." Mass market refers to table games played by mainstream tourists who account for the majority of Macau revenue, vs. baccarat and other high-stakes games played by so-called VIP high rollers. Kempf had an outperform rating on Sands, Wynn, MGM and Melco Crown.
Las Vegas casinos got a bit of good news in a report by Asian broker CLSA Tuesday.
CLSA expects the U.S. to be the top destination for the growing number of Chinese tourists by 2020. Chinese tourists spend more than visitors from other countries, and generally are more interested in fine dining and gambling, CLSA said.