UBS is optimistic that the VIP room will recover. This year’s gaming revenue will increase by 3%.

Macau’s total gaming revenue for the first four months of this year was 99.74 billion patacas, down 2.4% year-on-year. Chen Zhili, executive director of UBS Investment Research, which is responsible for the Macau gaming sector, said in an exclusive interview with the newspaper that the midfield business remained strong. In addition, the VIP room will usher in a cyclical recovery, so this year’s Macau gaming revenue will be increased from 1% to 3%. He mentioned that the current market valuation of the VIP room business is expected to be too pessimistic. It is expected that there will be a cyclical recovery in the VIP room. The gaming business with a relatively large number of VIP rooms will have a larger room for valuation.

Estimated to start improving in the third quarter

UBS will increase Macau’s gaming revenue to 3% this year, which will increase by 3%. The median revenue is expected to increase by 4% year-on-year and further increase to 9%. The VIP room revenue is expected to fall by about 3%. The improvement is expected to be about 4 percentage points. According to the Macau Gaming Inspection and Coordination Bureau, gaming revenue from the VIP room in the first quarter of this year fell 11% quarter-to-quarter to 37.21 billion patacas, the worst quarter since the second quarter of 2017.

Chen Zhili said that the mainland real estate market, which has a high correlation with the VIP room business, rebounded significantly in March and April. In addition, China’s first-quarter economy is believed to have bottomed out, and Sino-US trade negotiations have also made progress, which will enable the VIP room to usher. Periodic recovery.

However, the current market is not too optimistic about the recovery of the VIP room, UBS is one of the earliest brokers to vote with confidence. Chen Zhili stressed that it is not expected that the VIP room business will be significantly improved in the next one or two months, or it will appear in the third or fourth season.

The valuation of gambling stocks is reasonably sought after

Asked if investors are now advised to pay attention to the premature recovery of the VIP room, he explained: “Macau gaming stocks have gone up very quickly. When there are some signs, the stock price may have changed… if you want to capture (濠Gambling stocks, rising opportunities, I think it is early enough.” He believes that if China’s economic data continues to stabilize, the wealth effect of the third- and fourth-tier cities in the Mainland will be maintained, and the VIP office business will show signs of improvement in the future. At that time, the market will be convinced of the cyclical recovery of the VIP room.

Chen Zhili said that the current valuation of gambling stocks is equivalent to 13 times the estimated corporate value multiple (EV/EBITDA) in 2019. The overall level is reasonable, but due to the optimistic view that the VIP room will recover, individual VIP room business will account for a relatively high number of gaming stocks. There is still room for improvement in valuation. He also revealed that in the first quarter of this year, his clients have not seen their customers actively deploying gambling stocks. However, as the gaming revenue bottoms out last month, the chances of maintaining annual growth for the rest of the year are not low. I believe investors will bet on absorbing gambling. The interest in the stock will become bigger and bigger.