Morgan Stanley expects that the profit growth of Macau gaming stocks in the fourth quarter will lag behind gaming revenue, downgrading SJM HOLDINGS and Melco Resorts & ENT ratings

JP Morgan stated that it turned optimistic about the Macau gaming industry in June last year, as it judged that the industry was in an "upward cycle," driven by high-end demand from the wealth effect, ample market liquidity, and K-shaped economic differentiation. In the following quarters, gross gaming revenue (GGR) consistently exceeded the market's most optimistic expectations. However, profit margins did not improve in tandem, with profit growth lagging behind gaming revenue growth in the past two quarters. The bank expects similar conditions in the fourth quarter of 2025, primarily affected by increased operating expenses and a faster tilt towards VIP business.

Although the bank still believes that the recovery momentum of gaming revenue will continue this year, confidence in the upward cycle of profits has weakened; it has lowered its average EBITDA forecast for 2026 by about 3%, which is approximately 4% lower than market expectations.

The bank downgraded the rating of SJM HOLDINGS (00880.HK) from "Neutral" to "Underweight," and the rating of Melco Resorts & Entertainment (MLCO.US) from "Overweight" to "Neutral," and has adopted a selective strategy, focusing on market consensus risks and individual valuations. It maintains its preference for Galaxy Entertainment (00027.HK) and has removed Sands China (01928.HK) from its preferred list; it recommends avoiding SJM and Melco International Development (00200.HK)