It may be premature for Macau casino investors to get too excited about the better-than-expected April gross gaming revenue numbers. JPMorgan analyst DS Kim believes that the majority of the first leg of the Macau recovery rally in stocks has already run its course.

According to Kim, Macau operators will need to deliver profit growth before the next level of the Macau rally will commence. The good news for Macau bulls is that JPMorgan expects this profit growth will begin as soon as July.

“The bad news, however, is the stocks may take a breather until then, as investors could be tempted to lock in profits here—understandably so—given risk/reward post +c50 percent rally since January’s trough (vs. HIS +c15 percent),” Kim explained.

Kim noted that traders should be buying Macau names on any meaningful Q2 weakness in anticipation of a late-2016 recovery.

For now, JPMorgan sees Macau as a stock picker’s game. The firm has downgraded…

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