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Covid-19 pandemic hit almost every business sector, one of the biggest being travel and tourism. Macau gambling stocks were among the worst hit as the business saw a steep fall in visitors, but a turnaround is currently in progress which could provide opportunities for investors.
Casinos in Macau, the only place in China where gambling is legal, likely saw some of the heaviest losses in 2022, down 51% from the year before and the lowest since 2004. For the first half of 2022, the city’s 41 casinos reported losses of $2 bn, as Covid-19 restrictions in the mainland and lockdown in Macau hit the industry.
The case for Macau gambling stocks
The special administrative region has several casinos operated by six licensed firms. The last year brought some of the biggest changes for the Macau gambling industry, as Beijing has taken a tough stance on gambling, corruption, and capital outflows. However, it is proving difficult for Macau to handle its finances as 80% of its total earnings in 2019 came from the gaming industry.
“In 2018, of the US$16.6 billion collected in tax revenue, gaming contribution was close to 80%. Additionally, the gaming industry employs around 30% of the local labour force, providing approximately 80,000 jobs at casinos and junkets and boosting employment opportunities in related industries like hotels, and restaurants,” writes Holly So, ESG Specialist, Mirae Asset Global Investments.
The world’s top gambling city is now likely staging a comeback, the recent reopening of China and the Lunar New Year saw a surge in business. Macau’s casinos saw their January revenue climb 82.5% to 11.6 bn patacas (Currency of Macau SAR). This is after the city reported double-digit declines for 10 consecutive months due to the crackdown on cross-border gambling and zero-Covid regulations.
As per government data, Macau saw about 451,000 visitors during the Lunar New Year holiday, a nearly 300% increase compared to last year.
Separately, Macau’s six existing casino operators got new licenses to run their business for the next decade. There were a total of seven companies vying for the six available licenses, but Malaysia’s Genting Group was unable to become the new name in the market. The new licenses are part of sweeping changes and the new gaming regulations which helps the government regulate the casino industry.
As all the existing operators received licenses, it has eliminated a major uncertainty for the Macau gambling sector, whereas China’s change of stance on zero-Covid has helped boost revenue.
Below are the listed casino operators from the region, which could potentially be poised for further gains as they plan to invest around $15 bn in non-gaming activities to attract foreign tourists. The diversification comes as Beijing wants Macau to shift away from its reliance on gambling for earning a healthy revenue.
“International tourism to the Asia-Pacific region outside of China comes to nations with extensive world heritage sites, and long-standing infrastructure in marketing to group destination tourists. Macau’s attractions outside of its gaming industry will have to be built within it, as history has not positioned it with heritage sites per se,” as per industry expert Howard J Klein of Casino Business Review LLC who publishes on Smartkarma.
Sands China Ltd (1928.HK)
A unit of the Las Vegas Sands Corp, Sands China is listed on the Hong Kong exchange and operates a total of 12,400 hotel rooms and suites, around 150 different restaurants and food outlets, and has over 750 shops in its retail malls in Macau.
The company’s stock has risen over 25% in the past year, with the current market capitalization standing at around HK$228 bn (~$29 bn). Sands China’s PE ratio stood in the negative, indicating its loss-making status. The stock has risen over 50% in the month of November 2022 alone and has posted double-digit returns in the past two months as well.
Wynn Macau Ltd (1128.HK)
A luxury hotel and casino operator, Wynn Macau has a total of 1,010 rooms and suites. Listed on the Hong Kong Stock Exchange, Wynn Macau is owned by US-listed Wynn Resorts which has casinos around North America.
Wynn Macau has a market capitalization of HK$44.63 bn ($5.69 bn) and a negative PE ratio. The stock has given nearly 23% returns in the past year.
Melco Resorts & Entertainment Ltd (MLCO)
Although based out of Hong Kong, Melco is listed on the NASDAQ and was originally known as Melco Crown Entertainment. With a market capitalization of $5.8 bn, the company has given investors 26.9% returns in the past year. The stock has a negative PE ratio but has seen over 50% gains in November, nearly 35% gains in December, and a nearly 19% jump in January 2023.
The company operates casinos in Macau, the rest of Asia as well as Europe, and thus has a diversified base of the business, unlike the operators above which are solely focused on the Chinese region.
SJM Holdings Ltd (0880.HK)
Headquartered in Hong Kong, SJM Holdings operates nearly 3,000 hotel rooms and suites. Its flagship property is the Grand Lisboa Palace, which opened its door to patrons in mid-2021.
Listed in Hong Kong, SJM Holdings has a market capitalization of HK$29.61 bn (~$3.8 bn) and has seen the share price fall over 14% in the past year. The stock has a negative PE ratio.
Galaxy Entertainment Group Ltd (0027.HK)
Listed in Hong Kong, Galaxy Entertainment Group (GEG) has three flagship properties in Macau. It was one of the very first groups to get a license for operating casinos in the city of Macau.
The company’s stock has given investors over 19% returns in the past year but has a negative PE ratio. The total market capitalization of GEG stands at HK$231.02 bn (~$29.43 bn)
MGM China Holdings (2282.HK)
This is the best-performing Macau gambling stock and has seen its value rise more than 80% in the past year. However, it still has a negative PE ratio.
With a market capitalization of HK$32.21 bn ($4.1 bn), the company operates over 1,400 hotel rooms and suites in Macau.
“We see a strategy of being long the sector now before a positive news flow post-zero covid on GGR builds and analyst earnings targets are revised upward,” adds Klein.
JPMorgan analyst DS Kim too is bullish on the Macau gambling sector and sees pent-up demand to push the returns higher. JPMorgan expects the industry to return to 95% of the pre-pandemic levels by 2024.
