Slowing VIP GGR currently the biggest risk in Macau gaming

Still, a bullish view on Macau holds.

Slowing VIP GGR is perceived as the biggest concern for investors in Macau gaming and most operators expect VIP GGR growth to slow and stabilize at lower rates, and while it is believed that this expectation is currently factored into stock prices, near-term sentiment is described as fickle, especially if the growth is worse than expected.

According to a research note from Barclays, most operators named the following as the factors for driving the slow growth rates: demand, supply, and the transition of tables to premium mass from VIP.

For demand, junkets and players are heeding to the economic and political environment, which is currently placing increased scrutiny on corruption in China. For supply, meanwhile, smaller junkets, who are suffering from the lower demand and are having funding issues, are getting consolidated by the larger junkets which is causing a near term disruption to the junket eco-system.

Still, even with these concerns, Barcla reiterated a bullish view on Macau.

Here’s more from Barclays:

While we realize that it is difficult for some investors to become more constructive on Macau gaming stocks until there is more clarity regarding GGR trends and other perceived risks, we maintain that the Macau stocks are trading at attractive levels at 12.4x 2015E EV/EBITDA and likely factor in the sharp slowdown we expect in gaming revenue growth for the year.

We favor Sands China and MPEL, which are the least exposed to VIP, and Galaxy, which could generate market share gains driven by its 1H15 Galaxy Macau Phase 2 opening. For US-listed stocks, Felicia Hendrix remains bullish on LVS, MGM and WYNN (all stocks mentioned here are rated OW).