It was inevitable so what do we do now?
As we speculated in our Macau note yesterday, a sell side firm would likely make a negative call based on the China credit situation. Indeed, the Deutsche Bank analyst pulled the plug on a number of Macau stocks today. We don’t disagree with the call from a Trend (intermediate) perspective, but we think the downgrade could push the stocks into buy territory over the Trade duration.
Our call yesterday was to wait for the inevitable downgrade and look to buy on that weakness. The fact that the downgrade came from an influential analyst creates an even better opportunity.
We like the short-term Trade here and are still bullish on the long-term Tail. We share DB’s concerns over the Trend intermediate term. As we wrote about in our 05/22/11 note “A VIP SLOWDOWN IN THE CARDS?”, we’ve found that China central bank moves impact the Macau junket market on a 2-3 quarter lag. VIP is likely to be under pressure later this year.
However, over the near-term, we think the setup is positive as July could be a 20%+ growth month in Macau to go along with June’s high teens growth. We like MPEL and MGM on today’s likely weakness. MPEL looks to post another beat for Q2. MGM Macau’s performance has been surprisingly strong and MGM could also benefit from terrific May Strip revenues which we expect to be reported in two weeks (see our note yesterday “MONSTER MAY”).