Melco, Wynn Lead Macau Stock Rally as China Loosens Travel Restrictions

Posted on: September 26, 2022, 02:16h. 

Last updated on: September 26, 2022, 05:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

After nearly three years of punitive travel restrictions that hammered Macau’s casino industry, China is liberalizing travel to the special administrative region (SAR). That’s spurring a rally in shares of gaming operators.

Macau stocks
Wynn Macau, seen above/ Macau stocks rallied on news China is lifting travel curbs. (Image: NPR)

Among the three Macau operators trading on a major US exchange, Melco Resorts & Entertainment (NASDAQ: MLCO) is leading the way in terms of Monday gains. The City of Dreams operator is higher by more than 30% in late trading. Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) are both higher by more than 12%.

All three and their counterparts got a Monday boost when Beijing said it will resume approvals of electronic visas used by residents of mainland China to enter Macau. The government also said it will allow group travel to the casino hub to return.

Although it’s tough to quantify the immediate benefit, we believe the resumption of e-visas and group tours should alleviate friction for a Macau trip, as well as signal to many that it’s okay to visit,” noted JPMorgan analyst DS Kim in a report.

Kim added the Monday news could be the first signs of normalcy the SAR’s ailing gaming industry has seen since before the onset of the coronavirus pandemic.

Analyst Bullish on Sands, Wynn

As the operator of five integrated resorts, Sands China is the largest Macau operator by market share. Wynn Macau runs two casino-hotels and accounts for a significant portion of parent company Wynn Resorts’ earnings and revenue.

Translation: Sands and Wynn’s investors have long been waiting for some good news out of Macau, which finally arrived today. JPMorgan’s Kim forecasts Macau’s gross gaming revenue (GGR) returning to 25% to 30% of pre-pandemic levels next year, noting that most operators can stem losses at 30% to 35% of pre-COVID sales.

“Most operators can turn EBITDA positive when mass GGR hits around 30% to 35% of pre-COVID levels — except SJM [Holdings Ltd], which needs meaningfully higher levels, given new casino operating expenses — indicating some companies can start to print positive profits from the fourth quarter,” he told clients.

Jefferies analyst David Katz upgraded Sands and Wynn to “buy” ratings today. That’s clearly bullish. But it comes with some caveats.

“Second, whether the trajectory of recovery will be steep or gradual in the context of the shifting business mix noted above remains debatable. Third, the longer-term global fundamental outlook for Macau is questionable given the economic outlook, which is drifting more negative,” Katz told clients.

Visitation Particulars

In a normal operating environment, mainland China accounts for roughly eight of every 10 visits to Macau, followed by Hong Kong and Taiwan. That makes Beijing’s call to loosen travel restrictions all the more meaningful to the concessionaires.

The initial provinces where residents can apply for Macau visitation visas are Guangdong, Shanghai, Zhejiang, Jiangsu and Fujian, which combined 60% of travel to the SAR in 2019. It’s also vital that these visas are now being processed electronically.

“The most common pushback we heard was the lack of eVisa: currently, the Macau visa can only be processed in-person over the counter, which requires pre-appointment and approximately seven days of approval period, compared to eVisa’s instant approval via automated kiosks from walk-in,” concluded JPMorgan’s Kim.