Macau Shares Up, Decline Drags On

Some analysts say a rise in Macau casino stock values is just a blip in an ongoing downward trajectory. Optimists say the Chinese casino hub could be preparing for a rebound—eventually.

Year-on-year comparisons are easier

Major Macau casino operators including MGM China Holdings, Wynn Macau and Sands China Ltd. all saw big gains in the Hong Kong stock market this month, reports Bloomberg News. Could investor confidence mean the beginning of the end of a yearlong slump in the market?

Probably not, say several leading investment firms. Sam Le Cornu of Macquarie Investment Management Ltd. said there is “probably more downside” to come, at least in the short term. “In the long term, there’s an opportunity,” he added, “but investors need to be very selective.”

The rally took place after recent, rare good news for the Chinese territory. The government relaxed travel restrictions for visitors, and also indicated it may compromise on a full ban on smoking inside casinos. Despite the gain—MGM, Wynn and Sands all rose at least 20 percent in July—casinos remain the worst 12-month performers on the MSCI Hong Kong Index, Bloomberg reported. And stocks took such a steep dive in the first half that a rebound may have been inevitable, says Macquarie.

Many investors may hesitate for a while before buying Macau casino stocks, said Nomura Holdings Inc. in a July 14 note. Analysts surveyed by Bloomberg expect a 30 percent drop for 2015, before revenues grow by 4.5 percent in 2016.

“We’re beginning to see some green shoots,” said Tony Chu of RS Investment Management Co. “The comparables are going to get easier.”

“We may have seen the worst, but there’s no rush to buy,” Pauline Dan, of Pictet Asset Management Ltd., told Bloomberg. “China’s economy is still slowing and ongoing restrictions on their operations will continue to curb growth in casino revenues.”

The Motley Fool reports that Macau “could be approaching a bottom… and when revenue declines level off, we’ll be left with high-performing companies at incredibly low valuations, with a lot of high-value property in Macau to still grow with as the government eases up on restrictions.”

The website also says a cluster of new resorts on the Cotai Strip may help build the mass-market visitor base with their emphasis on nongaming attractions like entertainment, shopping and food and beverage.

According to the Macau Business Daily, the proportion of gaming revenue derived from VIP play was down 42 percent in the second quarter, and now accounts for “only” 55.5 per cent of casino revenue.

For July, equity research firm Stern Agee CRT says it predicts GGR will drop 30 percent to 34 percent year-on-year to about MOP18.6 billion (US$2.3 billion).