In a recent note touting Sands China stock to investors, Bernstein Research said the notion that China wants to reduce the role of U.S. operators in Macau is “unfounded” and “without evidence.” Speculation to that effect has soured investor enthusiasm, it noted, particularly during the current concession review process.
“China is not looking to deprive U.S. operators in Macau of the business opportunity or to treat them harshly compared to the Hong Kong operators,” the note said. “Over the past three years, China has made great strides in improving the regulatory environment with respect to foreign business and investment.”
It added that China’s “ease of doing business” ranking rose significantly between 2018 and 2020, from 78th place to 31st.
However, investors may not be easily reassured. Some fear that Beijing could undercut Macau’s No. 1 industry, especially in light of recent amendments to Macau’s gaming law. In mid-September, shares of Macau casino stocks shed as much as a third of their value—about $18 billion—on news that the government would introduce its own officials to monitor casino companies in the territory.
According to Asia Gaming Brief, Bernstein said Sands China’s stock was particularly hard-hit, plummeting 34 percent since the selloff. But the redevelopment of Sands Cotai as the Londoner and the renovation of the company’s Four Seasons bode well for its growth in Macau, Bernstein said.
The firm expects 2023 EBITDA to exceed 2019 levels, with a forecast for 27 percent compound average growth in EBITDA between 2022 and 2025.
It also notes that Sands has the smallest exposure to the VIP segment, so any changes in gaming law that will affect junket play will have little impact on the operator, AGB reported.
In a concurrent note, JP Morgan Securities (Asia Pacific) Ltd. weighed in on Macau’s 45-day consultation process regarding the proposed gaming law revisions. The brokerage pointed out that a government official at a public hearing said the proposed installation of government representatives at gaming companies would “not affect the business operations.”
Analysts DS Kim, Amanda Cheng and Livy Lyu wrote: “The official also explained the proposed dividend restriction (i.e., pre-approval requirement) is to ‘make sure operators can use their profits to promote the economic diversification of Macau.’
“The very fact that officials are trying to reassure public on these key concerns could indicate the government is approaching this process in a fair and reasonable way, we think—or hope—although the visibility on final outcome still remains low.”
JP Morgan said the government may extend the current license terms beyond their expiration date in June 2022. It could add six to 12 months to complete a process that was interrupted, like everything else, by Covid-19.
Some operators share that view. As reported in Inside Asian Gaming, Wynn Macau Ltd. wrote in its 2021 interim report recently that it expects its concession to be either “renewed or extended beyond June 26, 2022” while SJM Holdings Vice Chairman and CEO Ambrose So has called for licenses to be extended for at least 12 months to allow operators some time to recover from the financial impact of the pandemic.
JP Morgan said the government’s “tone” has been “somewhat reasonable, in turn alleviating concerns on the worst-case scenarios to some extent.”
Meanwhile, David Chow Kam Fai, a former Macau legislator and founder of Hong Kong-listed Macau Legend Development, said it’s “necessary” to “strengthen the supervision of the concessionaires” in the Macau casino market. In an opinion article, Chow wrote that the proposals made by the Macau government as “indispensable.”
“Independent third parties … must be introduced to comprehensively evaluate the loan, financing and cash flow ratios of the concessionaires every year and issue reports accordingly,” Chow wrote. “Such measures aim to prove that the concessionaires have healthy cash flow so as to safeguard their daily operations and local employment.”
In related news, according to the Macau Daily Times, gross gaming revenue in Macau doubled from October 18 to 24, in line with the surge in tourist arrivals as border restrictions were eased following over a week of no new Covid-19 cases in the city.
