Macau’s gaming law reforms positive for casino industry, but outlook clouded by Covid-19 uncertainty, UBS, JPMorgan analysts say
- Investors cheer changes to gaming law, with Sands China and Galaxy Entertainment leading the gainers
- UBS positive on the sector through 2022, but the coronavirus situation is ‘the elephant in the room’
The amendments to Macau’s gaming laws have removed significant regulatory overhang for the city’s casino industry, but the outlook for the sector remains clouded because of the uncertainty over Covid-19, analysts said.
Hang Seng Index constituents Sands China soared 14.6 per cent and Galaxy Entertainment jumped 7 per cent, pacing a rally in gambling concessionaires. MGM China gained 11.7 per cent, while Melco International and SJM Holdings rose at least 4.8 per cent. Wynn Macau added 11.9 per cent. The six casino operators added HK$42.2 billion (US$5.41 billion) to their market value.
“A lot of the terms and the changes are quite benign. Overall, this [provides] clarity and removes a big overhang for the sector,” said UBS analyst Angus Chan in an interview on Monday. “Investors have been concerned about policy risk, so [the amendments should] show that the Macau government is very pragmatic and sensible about Macau.”
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While the Swiss bank remained positive on the sector through 2022, the coronavirus situation remained “the elephant in the room,” he added.
UBS said that with the complete removal of the regulatory hurdle and reopening of the border as the Covid-19 situation improves, shares of Macau gaming concessionaires could double by the end of the year from levels seen before the amendments to the gaming law.
Analysts at JPMorgan were slightly more cautious in their assessment, but noted that the proposed changes should help make the gaming sector “investible for a wider swathe of investors”.
“We can’t say all the licence risks are gone, but most of the key concerns – gaming tax, dividend and government delegate among others – should be greatly alleviated if not removed” after the government’s announcement, JPMorgan analysts led by DS Kim wrote in a report on Saturday.
Analysts at Credit Suisse and HSBC believed the market would welcome the new clarity on the gaming law.
However, Credit Suisse analysts said that “near term, we believe that the recovery path is still uncertain amid China’s zero Covid policy, but the gaming law removed a major regulatory overhang on the sector”.
Brokerage CLSA was less optimistic about the outlook for the gaming sector.
“The short duration of the concessions of only 10 years signals more substantial change could come in a decade’s time, which will elevate risk and most certainly limit investment,” CLSA analysts led by Jonathan Galligan wrote in a report on Sunday.
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The Macau government had sought public feedback on nine questions including the number of concessionaires, the duration of their licences, supervision of their businesses, criminal liability and non-gambling businesses.
