Macau Casino Stocks Rally as Report Indicates Six Licenses to Be Renewed

Posted on: December 23, 2021, 10:00h. 

Last updated on: December 23, 2021, 10:34h.

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

Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) are among Macau casino stocks rallying today. That’s after a report from the Gaming Inspection, and Coordination Bureau (DICJ) indicates the upcoming license renewal process in the world’s largest gaming hub will result in the six current concessionaires keeping their permits.

Macau renewal
Macau’s DICJ sets forth proposals for license renewal. It looks encouraging for operators like Wynn and Sands. (Image: Getty Images)

DICJ released results of a 45-days consultation period that previously spooked investors, leading to rapid erosion in market values of Sands, Wynn and Melco Resorts & Entertainment (NASDAQ:MLCO), among other Macau operators. In the report, DICJ sets June 26, 2022 as the date for commencing retendering, implying there will not be extensions of permits under current terms.

Dividend regulation, the Macau government taking larger equity stakes in the operators and government representatives having more oversight of day-to-day casino operations — the items that roiled investors a few months ago — appear manageable, according to Morgan Stanley analysts. The bank adds gaming permits are likely to be renewed for periods of 10 to 20 years.

In September, shares of concessionaires in the world’s largest casino center tumbled. That’s after authorities there announced the start of a new consultation period that includes an array of new policy pitches. Global investors are interpreting that as leading to more oversight and regulation. Among those considerations is a rule whereby government approval would be required to pay dividends to shareholders.

‘Favorable’ for Sands

With five integrated resorts in Macau, LVS is the largest operator in the special administrative region (SAR) and its top and bottom lines are highly tethered to performance there. That dependence works in sanguine market environments. This year, however, Macau is largely the reason shares of Sands are off 38 percent. But analysts see some positive news in the clarity provided by DICJ.

We maintain our view that these gaming licenses are very likely to be renewed, based on our stance that expertise and liquidity profiles of existing operators offer the best formula for the government to achieve its stated goal of making Macao a world tourism destination,” according to Morningstar.

License renewal is obviously vital for Sands, but the urgency is elevated today because with the Macau junket model all but dead, mass and premium mass players — the operator’s core constituencies — are now points of emphasis. LVS already has sizable leads over most Macau rivals in catering to those gamblers.

Regulatory Review

The DICJ consultation offers up nine marquee points, including the number of licenses, length of time those permits will be valid, employee protection and “increase the statutory requirements for the supervision of approved companies.”

Others include the following: “(5) Strengthen the review mechanism for approved companies, gaming intermediaries and partners; (6) Introduce government representatives; (7) Promote projects with non-gaming elements; (8) Social responsibility; (9) Clarify criminal Liability and administrative punishment system.”

Release of the proposals comes after Macau Chief Executive Ho Iat Seng delivered the SAR’s annual report to Chinese President Xi Jinping on Wednesday.