Casinos' run of bad luck picks up speed

PUBLISHED : Tuesday, 04 October, 2011, 12:00am
UPDATED : Tuesday, 04 October, 2011, 12:00am

It turns out the house does not always win.

SJM Holdings led a massive plunge in shares of Macau casino operators yesterday, falling a record 25 per cent.

It was the second day of a rout that has erased HK$135.5 billion in market value at the six companies licensed to operate casinos in the world's biggest gambling market.

From their peaks only two months ago, shares in the six firms have declined by 36 to 59 per cent. The sector's market capitalisation fell to HK$349.2 billion as of yesterday, down almost half from the HK$633.6 billion it was worth based on each company's peak share price since August 1.

Analysts are hard pressed to single out a reason for the slump, and recent explanations range from probable to plausible to patchy.

Genuine fears over a collapse of China's underground lending market have spread, triggered by mainland media reports of dozens of Wenzhou factory bosses skipping out on their grey market debts.

Similar funding channels are believed to have helped fuel soaring VIP gaming volumes in Macau, where high-stakes mainland gamblers are underwritten by the so-called junket agents who bring players to casinos, issue them credit and collect their debts in exchange for a commission.

VIP baccarat accounts for more than 70 per cent of Macau's total casino revenue, which rose 47 per cent in the first eight months of the year to a record 173.1 billion patacas.

Less clear is the impact that short sellers have had on Macau casino shares over the past two trading sessions.

Lawrence Ho Yau-lung's Melco International Development is the most shorted stock in the sector, but the firm's shares on loan to short sellers accounted for a modest 3.29 per cent of its share capital through last Thursday, the most recent data available, according to figures from Data Explorers.

Other explanations for the rout look tenuous. A report last Thursday that South Korean casino operator Grand Korea Leisure had stopped granting credit to high rollers, who mainly hail from China, received much attention once Macau casino stocks began their plunge on Friday.

Grand Korea, controlled by the Korea Tourism Organisation, operates three 'Seven Luck' casinos, two in Seoul and one in Busan. The company maintains a marketing office in Macau and has advertised extensively in both Macau and Hong Kong.

But Grand Korea launched a similar move last year, suspending credit for two months, with no impact on Macau. And credit-backed play accounts for only 6 to 7 per cent of the Korean firm's total volumes, say analysts at Shingyoung Securities.

Likewise, some commentators cited market rumours that a new round of visa restrictions on mainlanders travelling to Macau could be on the horizon. But that would likely have little impact on the red-hot VIP segment, where revenue soared 49 per cent in the first half.

Instead, visa restrictions have been shown to disproportionately hit the mass market, where revenue grew a more modest 33 per cent in the first six months.

Still, at least in the past two days, betting against the house has never looked so profitable.

Tumbling dice

Drop from peak in last two months (%)

Sands China: 36.1

Wynn Macau: 40.6

SJM: 49.2

MGM China: 54.2

Galaxy: 56.9

Melco Int'l: 58.5

Source: Bloomberg


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