Macau casino stocks shine in post-Covid rally as JPMorgan sees headroom for more upside
- Investors should look past losses in the final quarter of 2022 and bet on a post-Covid-19 recovery, according to JPMorgan, Credit Suisse and Jefferies
- Casino stocks rallied by 3 per cent to 9 per cent in Hong Kong on Thursday, outpacing the Hang Seng Index’s 1.6 per cent bounce
Shares of Galaxy Entertainment and peers including Sands China and MGM China climbed by 3 per cent and 9.2 per cent in Hong Kong on Thursday, outpacing the Hang Seng Index’s 1.6 per cent gain. A Bloomberg index tracking the six listed incumbent operators rose 4 per cent, the most in five weeks.
While it was only 46 per cent of the pre-pandemic volume in January 2019, analysts said the future is promising following encouraging signs of visitor arrivals during the Lunar New Year holiday last month as tourists returned to the world’s biggest gambling hub.
02:35
Macau sees tourism rebound over Lunar New Year after easing of restrictions
“January GGR results have been a pleasant surprise to the market,” Kenneth Fong, an analyst in Hong Kong at Credit Suisse, said in a report earlier this month. Positive newsflow and improvement in revenue could lift sentiment and share price performance going forward, he added.
China eased its zero-Covid curbs from late November before officially scrapping the policy in early January. The swift reopening of the economy caught the market off guard, fanning a US$1.5 billion stock rally across Hong Kong’s equity market until the Lunar New Year holiday.
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The casino industry recorded 380 million patacas per day in GGR between February 1 and 5, according to Jefferies. This could reach 49 per cent of pre-pandemic levels at 390 million per day this year, and 64 per cent or 508 million next year, the brokerage forecasts.
Investors should look past the latest reports showing continued losses incurred by the operators in the final quarter of 2022 as they were “well expected,” according to JPMorgan Chase. MGM reported a US$55 million loss while Wynn Macau suffered a US$59 million setback.
06:31
‘What else have we got?”: Macau questions role as casino hub after painful Covid downturn
The fourth-quarter reports are a “non-event” as the focus will shift to their positive commentary outlook, said Andrew Lee, an analyst at Jefferies in a research note on Wednesday.
Investors would have to see if the holiday-induced recovery in January can extend into February and March. A key to that will be wider travel options as border restrictions are removed at all entry points within China, and international flights are restored and normalised, analysts said.
China’s cross-border trips at 3-year high as Hong Kong, Macau open up fully
Craig Billings, CEO of Wynn Resorts, said the firm was pleased to experience “a meaningful return of visitation and demand” during the recent Lunar New Year holiday in late January, adding the firm is well positioned for success in Macau’s next phase of growth.
“We remain comfortably bullish on the sector, as we view current valuations as compelling,” DS Kim, an industry analyst at JPMorgan, said in a report on February 6. “We still see good headroom in terms of both earnings and valuations, and thus for share prices.”
Additional reporting by Li Jiaxing
