Macau Casino Stocks Boom But Covid Uncertainty Leaves Investors In Limbo

Macau’s casino industry finally has certainty heading into the future after its Big Six casino operators were all granted licenses for the next 10 years – but Covid remains a persistent battle for the operators despite the improved outlook.

Macau has endured a rollercoaster two years since Covid-19 shut down much of the economy. In recent months its casino industry has come back to life but it’s still laboring under the pressure of local lockdowns.

China’s “Zero Covid” policy stretches to the territory even though it is semi-autonomous.

On top of this, the Chinese government’s decision to overhaul licensing rules and bring in tougher regulations on its casino industry has meant Macau has rarely been as unattractive an investment venture as it is right now.

But that doesn’t appear to have deterred the Big Six operators – which include Wynn, MGM and Sands – from leaving the territory.

Macau Casino Boost

Indeed, late last week Macau confirmed it has renewed casino licenses for MGM Resorts, Las Vegas Sands, Wynn Resorts and three Chinese rivals. This sparked an immediate stocks price boost across all six operators, with prices jumping 7.6%. Wynn Macau’s price soared 15% upon the news of its license being renewed.

The refreshed agreements give the Big Six a guaranteed presence in Macau for the next decade, with Genting the only casino operator missing out on a license.

And JPMorgan Securities predict further investment will now be forthcoming in the territory.

According to the bank, gross gaming revenues (GGR) in Macau are running at 10% to 15% of pre-pandemic levels. And there’s room for improvement.

“We think there is more room for recovery, particularly within mass GGR in 2023, when we think GGR can approximate 60 percent of 2019 levels, and improving further in 2024, to 90 percent of 2019 levels. We’d like to think these numbers are rooted in conservatism,” said the bank.

“As we head into 2023, we think Macau has the most upside within our coverage universe.”

Covid Knock-back

However, the news from Macau isn’t all good. While share prices may be on the rise, it looks as though 2022 will become known as the territory’s worst year on record.

Regular Covid-19 restrictions and a tightening on foreign tourists means casino revenue has plummeted 56% from November 2021, to $374m. Analysts had predicted a 47% drop.

And it’s all because of tourist numbers. China will let tourists into Macau but only by going through a 10-day Covid-19 purgatory period, which includes seven days in isolation. Almost three million tourists visited Macau in October 2021, but this year the same month saw just 580,000 visit – primarily from mainland China where isolation isn’t required beforehand.

Any visitors from Hong Kong need to isolate for five days.

And it doesn’t look like this trend will stop in 2023 either. While banks may be optimistic about the financial success of Macau’s casinos from next year, the estimated tourist figures remain on the cautious side. China recently ceded ground in its staunch Zero Covid policy following widespread protests in the country, but Macau is by no means free from the disease.

Indeed, Macau casinos are now asking staff to test every four days in an effort to stem the spread of the virus – a move considered necessary as authorities back away from mass testing initiatives.

All the while the Chinese population is seeing how the rest of the world is getting on largely restriction-free, with fans from across the globe converging for the soccer World Cup.

So wary are the Chinese authorities of its people seeing supporters at World Cup stadiums freely enjoying the tournament that TV producers have been banned from showing close-ups of the crowd.