Is it time to buy?
More relaxed visitation rules in Macau are expected to boost the territory’s tourism trade and hopefully lift the casino sector, which is in a record-breaking 13th month of decline. But a planned full smoking ban that may extend to the city’s gaming halls will almost certainly contribute to the slump.
Late last month, Macau’s Secretary for Social Affairs and Culture Alexis Tam Chong Weng reiterated the government’s determination to ban smoking everywhere, including casinos.
Casino operators have appealed to the government to let them retain their smoking lounges. They say a full ban will hurt an industry already broadsided by President Xi Jinping’s crackdown on corruption and money laundering. Tam responded by saying that public health concerns take precedence over casino profits, reported GGRAsia.
Investment analysts say closing mass floor smoking lounges could slice another 10 percent from mass market gaming revenue and as much as 15 percent from VIP revenue. The casinos commissioned a survey that said 66 percent Macau’s 34,000 Macau casino workers “support the retention and development of smoking lounges within the casinos.” But a poll taken by the government concluded almost 60 percent of residents support the full ban.
On the bright side, the government has changed visitation rules to allow Mainland Chinese residents to visit Macau twice a month rather than twice every 60 days, and stay longer—up to seven days per visit, rather than five days. Stocks rose on the news, with the Las Vegas Sands Corp., Wynn Resorts Ltd., Galaxy Entertainment and MGM China all posting increases. Nomura gaming analyst Harry Curtis said gaming revenue also grew in the aftermath of the visa news. “As of yet, we have no clear reason for the month-end increase, but it could correlate with the beginning of the traditionally stronger summer tourist season,” Curtis said.
According to Macau’s Gaming Inspection and Coordination Bureau, casinos in the market collected $2.172 billion in gaming revenue in June, down 36 percent year-on-year. June was Macau’s ninth straight double-digit decline.
The easing of travel restrictions “marks the first supportive policy since a year ago,” wrote Karen Tang, an analyst at Deutsche Bank AG. Tang also raised Galaxy, MGM, Sands and Wynn Macau to hold from sell.
And Ben Lee, managing partner at Macau-based IGamiX Management and Consulting, said Beijing “has probably decided the downturn in Macau has cut deep enough and that it is time to stabilize the economy.”
Gaming analyst Cameron McKnight said the industry should not expect “a sharp ‘V-shaped’ recovery like in 2009 and 2013, given stricter policy settings and lack of broad-based economic stimulus in China.”
But Ratings agency Moody’s Investors Service says the city has built up enough revenue to weather the storm for the time being, and its credit profile likely will not suffer in the short- to medium-term. “Revenues from gaming have contributed to large fiscal surpluses built over the last decade, and externally, service exports related to gaming have led to sizeable current account surpluses and foreign reserves,” the rating agency wrote. “These buffers will help the city’s credit profile withstand lower revenues in the gaming industry.”
Moody’s also warned that a “prolonged shock to the gaming industry” could lead to budget deficits, dwindling reserves and “a resort to debt.”
The website SeekingAlpha.com sees a possible “buying opportunity” in the situation. “GGR may have bottomed in June,” according to a report on the site. It then predicted “a pickup in the coming month as we head into the summer holiday and the relaxation of transit visa requirements. Both Sands China and MGM should have better support given their higher yield and smaller cost base. As for the other names, it is better to wait for a better entry point once we have more clarity by August.”
