2016 a year of “inflection”
The National People’s Congress Standing Committee of China has promised to step up the anti-corruption efforts called for by President Xi Jinping in the summer of 2014. The crackdown on graft and money laundering caused a precipitous decline in Macau’s multibillion-dollar casino industry, which has lost half its value over the last 18 months.
According to the China Daily, committee members vowed to be “disciplined and clean” in 2016. Lionel Leong Vai Tac, Macau’s secretary for Economy and Finance, says the “Macau spirit” is unquenched, despite the economic downturn. “This year, Macau people are facing a year of economic adjustment, but most do not complain,” said Leong. “On the contrary, they have a positive attitude toward the new economic situation.”
Meanwhile, the recession goes on. The Las Vegas Review-Journal reports that brokerage firm Nomura has downgraded the stocks of several gaming company heavily invested in Macau, including Melco, the Las Vegas Sands Corp. and Wynn Resorts.
Nomura expressed concern about mass-market gaming due to “three deteriorating macro trends: declining lottery sales in China from 2015; a depreciating renminbi (down 10 percent in the past two years); and declining Chinese visitation (down 4 percent year to date to November 2015.” Brokerage firm Sanford C. Bernstein sounder a more positive note, saying 2016 will see a return to growth for mass-market gaming.
Nomura advises investors to “focus on defensive stocks with high dividend yields, like Sands China,” because 95 percent of EBITDA at Sands China came from “non-VIP sources.”
The Sanford Bernstein team said they remain “more inclined towards Sands China (due to mass dominance, critical mass on Cotai and focus on return of capital) and Melco Crown (largely stemming from outperformance in premium mass and the Studio City project).” They added that Macau casinos “have become attractive (especially for longer-term investors) and we believe 2016 will be an inflection point with growth in mass gross gaming revenue and non-gaming revenue with stability in margins.”
