Macau gaming growth skidded in May

Macau gaming revenue slowed year-over-year for the month of May. Investors were particularly disappointed as May is a holiday week in Mainland China.

Photo courtesy Jennifer Morrow: http://www.flickr.com/people/donotlick/

The iconic Casino Lisboa

Net gaming revenue growth in the former Portuguese enclave slipped to a mere 7.3%, the slowest rate of growth in nearly three years. While a drop in growth was somewhat expected, few analysts predicted a drop this steep.

However, although Macau gaming growth has slowed recently, it does not mean it’s time to exit casino stocks with Macau exposure. In fact, given the recent sell-off in gaming names, many are attractively valued here.

Both Melco Crown Entertainment (MPEL, quote) and Las Vegas Sands (LVS, quote) have dropped precipitously over the past, with the two losing 16% and 14% of their value, respectively.

However, there remains a distinct possibility that Macau gaming growth could pick up later in the year as the result of recently enacted Chinese government stimulus.

With China cutting interest rates for the first time in years, as well as the implementation of infrastructure-related projects, Chinese growth could increase more than expected later in the year. The positive psychological elements of such growth could see an increase in discretionary spending in sectors such as gaming.

As a result, investors should consider looking at Macau gaming names here. While a full position is unwise until pressure on equities from the current mess in Europe eases – or at least clarifies, starting a small position in LVS at these levels could be profitable.

Disclosure: Author is long LVS and MPEL

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