But slowing Chinese economy still a problem
Wynn Resorts, one of three U.S. casino companies that’s invested heavily in Macau, was one of the big winners as the United States and China called a moratorium on trade tensions, if only for now.
According to the New York Times, Wynn was the second best-performing stock in the S&P 500 on December 3, the Monday after U.S. President Donald Trump and Chinese President Xi Jinping met at the G3 summit in Buenos Aires. There, the leaders called a 90-day halt to the trade war between their countries, the world’s two largest economies.
The Times reports that Wynn generated almost 75 percent of total revenues this year from its casinos in Macau, so success there is pivotal. For example, in November, Wynn shares toppled 13 percent after the company’s third-quarter earnings conference call when Wynn CEO Matt Maddox warned that it had seen a drop in its Macau business.
Wynn and other U.S. casino operators in Macau—including the Las Vegas Sands Corp. and MGM Resorts International—all face a license re-tender in the jurisdiction between 2020 and 2022. While most analysts seem to agree that trade tensions would likely not affect those billion-dollar concessions, the trade dispute created uncertainty and possibly could lead to an abundance of caution when it comes to investment in the city. After the Trump-Xi meeting, however, Wynn, LVS and MGM shares all rallied to their highest levels in at least four weeks.
It’s not all fair weather, as the Chinese economy continues to slow. That could cause gamblers, especially high rollers, to sit out the games, and that could take a bite out of gaming revenues.
All that said, on December 1 Macau’s Gaming Inspection and Coordination Bureau announced that November gross gaming revenues grew 8.5 percent year-on-year, handily beating Wall Street forecasts of 4 percent growth. But Brian McGill, gaming analyst at Telsey Advisory Group, says the numbers were driven mainly by higher hold as well as an extra Friday in the month compared to November 2017. “The bottom line here is that despite a modestly impressive headline number for November, neither the underlying demand trends nor the regulatory outlook and competitive environment seem conducive for current Macau operators,” the analyst said in a note reported by the Las Vegas Review-Journal.
Stifel analyst Steven Wieczynski had a different view, and said the Macau market “continues to hold up better than the ‘fear’ that is associated with it. In a market driven by momentum, Macau’s November gross gaming results result should be viewed positively given the negativity around Macau in general right now.”
But he acknowledged investors’ “lingering uncertainties” about the Chinese economy. “We expect Macau operators’ shares to remain somewhat range bound until additional data points confirming the overall direction of the Macau gaming market emerge,” Wieczynski said.
Union Gaming analyst Grant Govertsen said Macau’s junket operators haven’t “hit the panic button. Most are still seeing growth and are cautiously optimistic about their prospects.” Govertsen predicts modest growth for the market in the near term. “The most likely scenario remains a decent mass market story—low double-digit growth—and a mixed (high-end) story with modest growth.”
Fitch Ratings, meanwhile, warns that several casino sectors including Singapore and Australia will be affected by the slowing Chinese economy over the next year with growth in the “mid-single-digits” in 2019; it adds that the trend could also “spill over” to affect the Las Vegas Strip.
However, it gave a “long-term positive outlook as we believe greater China, with a growing middle class, is under-penetrated.”
