Macau gaming concessionaires should be prepared to “voluntarily” invest both in nongaming developments and “social responsibility” programs in the casino city and nearby Hengqin, according to a January 12 note from JP Morgan Securities (Asia Pacific) Ltd.
In 2021, the island called “Macau’s front door” was designated a Special Economic Zone, with the goal of helping Macau diversify its economy beyond gaming. According to GGRAsia, the Guangdong-Macao Intensive Cooperation Zone in Hengqin is being developed jointly by Macau and Guangdong Province on the mainland, which ordinarily has jurisdiction over Hengqin. And last year several Macau law experts said concession bidders will be asked to make non-gaming investments in the Guangdong-Hong Kong-Macau Greater Bay Area, an initiative to integrate the economies of Macau, Hong Kong and Guangdong.
JP Morgan analysts DS Kim, Amanda Cheng and Livy Lyu said if bidders for new Macau gaming licenses are asked to pledge their support for Hengqin, “this would indirectly lower operators’ return on invested capital to some extent.” They added that “license losses or tax hikes are unlikely.”
The Macau government plans to amend its gaming regulations before the existing casino concessions expire in June.
Meanwhile, the JP Morgan team upgraded the stocks of MGM China, Sands China and Wynn Macau—all subsidiaries of U.S.-based casino giants—from neutral to overweight.
“We turn incrementally bullish on Macau SAR gaming,” they wrote. “Most investors seem hesitant to bottom-finish, citing license risks, VIP fallout and uncertain travel policies as key concerns. These are all valid, but we think the level of concern is unnecessarily high.
“First, on licenses, we think major disruptions such as license losses or tax hikes are unlikely, as suggested in the recent public consultation report.
“Second, we completely write off junkets from our models, but the impact on fundamentals isn’t that meaningful (around 10 percent of pre-Covid-19 EBITDA).”
They added that “history—and our recent checks—suggest demand from premium mass or even direct VIP remains unscathed from junket fallout.
“Third, the pace of travel normalization is indeed tough to predict, but we view this as a transitory issue, something that long-term investors can look through when prices are as cheap as today’s.”
Analysts at Fitch Ratings say China’s zero-tolerance Covid strategy could put a damper on 2022 visitation. But Wynn Macau Vice Chairman and Executive Director of Wynn Macau Linda Chen said she is confident the city will reach the government-estimated gross gambling revenue (GGR) of MOP100 billion (US$12.48 billion).
She also expressed confidence the company will be relicensed for casino operations. She pointed out that local casino operators have invested a lot not only in real properties, “but also in human resources and talent cultivation.”
As reported by Macau Business, Chen said the industry is focused on the growth of the mass gambling market, Macau’s most important sector and a key to sustainability.
“The diverse consistency of clientele in the mass gambling market is crucial to Macau’s economic diversification,” Chen said.
The Fitch team believes there “is no obvious evidence yet” that U.S. operators in Macau “will be treated differently” than their Chinese-controlled peers.
“The operating subsidiaries (of the U.S.-based firms) are ultimately owned by Hong Kong-listed public entities, are large local employers, have invested tens of billions of U.S. dollars in capital and consistently promoted the government’s social goals,” the ratings agency said.
