Casino Stocks Rise As Macau Market Shows Signs Of Recovery

The shares prices of some of the main Macau casino operators including Las Vegas Sands, MGM Resorts, Wynn Resorts and Melco Crown rallied sharply after better-than- expected trends were reported for the Macau casino market.

According to the latest report released by the Macau Gaming Inspection and Coordination Bureau, the monthly gross gaming revenue for Macau dropped by 9.5 percent to $2.17 billion which was better what was anticipated by gaming analysts.

David Bain, an analyst at Sterne Agee expected a decline of 14.2 percent while Wells Fargo analyst Cameron McKnight had anticipated a 11 to 12 percent decline. Other analysts expected the decline to be 13.5 percent but Macau’s casino industry performed a lot better thanks to its non-gaming offerings.

Las Vegas Sands rose by 3.5 percent on the back of the positive news after a worse-than-expected quarter results had earlier pulled the share price down by 9.2 percent. Wynn Resorts moved up by 6.8 percent while MGM Resorts rose by 1.7 percent, and Melco Crown increased by 3.8 percent.

The gaming revenue for Macau dropped to $29 billion in 2015, a decline of 34 percent over the previous year. This year, gaming revenue declined by 16.5 percent in March, 0.1 percent in February and by 21.4 percent in January. The relatively strong performance in February was due to the Lunar New Year holiday.

The slump in Macau’s casino revenue, which has now been ongoing for twenty three consecutive months was triggered by the anti-corruption crackdown launched by Chinese President Xi Jinping in 2014 and compounded further last year by the slowdown in the Chinese economy.

Some industry executives and observers have said the market is showing signs of recovery based on trends in the past few months, but others disagree.

In a statement, McKnight said,

We remain on the sidelines on the Macau gaming names as estimates and valuations adjust to a ‘new normal’ of (1) a weak Chinese economy and (2) a recovery that is likely to be flatter than prior rebounds, contributing to more muted revenue growth in Macau.

According to McKnight, gambling revenue in Macau would fall 7 to 11 percent in May. Sterne Agee’s Bain on the other hand predicts a decline of 9 to 12 percent. The wider consensus among analysts is a drop of 7.2 percent.

Bain has recommended shares of those casinos catering to mass market tourists and suggested that those which focus on VIP high roller gamblers be avoided. McKnight has observed that among its peers Wynn, Melco and Las Vegas Sands would be the best positioned to benefit if and when the Macau market returns to its full potential.