Macau casino stocks have been roaring to new 52-week highs in recent weeks as investors regained their enthusiasm for the market thanks to the return of double-digit revenue growth.
The gains in stock prices have been stunning. Here are the percentage gains on the six pure Macau plays since their 52-week lows:
Galaxy 196%
MGM China 79
SJM 68
Wynn Macau 66
Melco 54
Sands China 51
The American parents of Macau casinos have done well, also, though diluted by operations elsewhere:
Wynn 38%
Las Vegas Sands 35
MGM 29
Those are big gains. And valuations are fairly high, too. Here are enterprise value-to-EBITDA ratios:
Sands China 150 times
Wynn Macau 23
MGM China 20
Galaxy 18
Melco 13
SJM 9
SJM is cheap on this basis and Melco fairly inexpensive.
And the American parents:
Wynn 20 times
Las Vegas Sands 14
MGM 13
Those big gains and hefty valuations, however, are nowhere near the dizzy highs of February and March 2014 when Macau casino stocks peaked.
Even given the big gains cited earlier, this is how far stocks today are below the peaks of that era:
SJM -74%
Melco -67
Wynn Macau -55
Galaxy -49
MGM China -48
Sands China -45
American parents:
Wynn -54 percent
Las Vegas Sands -35
MGM -5
It should be noted that the narrow difference between MGM’s high in March of 2014 and its current price reflects concerns investors had then for the company.
Of course, valuations reflect expectations of future performance, and there will be questions for each company as they release first quarter earnings:
• Wynn. Is the new Wynn Palace ramping up, as investors are expecting, and as disruption diminishes from surrounding road construction?
• MGM. When precisely will MGM Cotai open? And a non-Macau question: Have financial results bounced back from a disappointing fourth quarter?
• Las Vegas Sands. Will the new Parisian in Macau gain traction in light of the belief that it hasn’t so far?
• Galaxy. How well is the company performing with two new competitors and in the face of another looming in MGM Cotai. It is worth noting that Galaxy has already answered the question about its faith in the market to absorb new capacity by having begun preliminary work on Phases Three and Four of its mega resort.
• Melco. Is the ramp-up of Studio City, which finally appears to be occurring, able to continue and even accelerate?
• SJM. Can the company regain some market share or will it just mark time until its own Cotai resort, Lisboa Palace, comes on line?
• All. How much growth potential does Macau have above the double-digit gains now being experienced?
And with the Macau government having laid out its priorities for the casinos, what’s the outlook for renewing casino concessions, perhaps earlier than 2020 and 2022?
Finally, the roller coaster ride did not happen in a vacuum. It was the direct result of policies of the national government, which was determined to wring out corruption of public officials who absconded to Macau to gamble with the public’s money, to enforce rules designed to keep money at home and to avoid money laundering.
Now, the recovery is happening out of the belief that the government has made its point and it’s safe to go back to Macau.
That might be true. But Macau is still part of Communist China where prudence needs to allow for government policies to shift.
Anyone who dusts off three-year-old studies that show Macau casinos with only one or two percent market penetration and again makes sky’s-the-limit extrapolations might end up looking as foolish in some future date as they did after the market collapsed in 2014.
