Melco, Wynn Lead Macau Stock Rally as US-Focused Operators Wilt Against COVID-19 Backdrop

Posted on: July 13, 2020, 02:15h. 

Last updated on: July 14, 2020, 10:02h.

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

Melco Resorts & Entertainment (NASDAQ:MLCO) and Wynn Resorts (NASDAQ:WYNN) led a rally in gaming equities Monday that was largely confined to companies with Macau exposure. That rally came after it was revealed Guangdong province will lift its quarantine policy with the gaming mecca starting Wednesday morning.

Macau Stocks Boom
Shares of Macau stocks, including Parisian operator Las Vegas Sands, soared Monday on news of Guangdong ending its quarantine policy. (Image: Wall Street Journal)

Melco — the operator of Altira Macau, City of Dreams, and Studio City in the Special Administrative Region (SAR) — surged 16.21 percent on volume that was more than triple the daily average. Wynn — the owner of Wynn Macau and Wynn Palace — gained 9.62 percent on turnover that was more than double the usual daily tally.

Earlier today, Guangdong authorities said travelers returning to the province from Macau won’t be subjected to a two-week healthcare seclusion policy that was instituted at the height of the coronavirus pandemic.

Analysts view that announcement as critical to the gaming center’s recovery hopes because Guangdong drove 45 percent of Macau visits last year and is home to major cities, including Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqin.

Shares of Las Vegas Sands (NYSE:LVS), which operates five integrated resorts in the Chinese gaming center, soared 6.15 percent on volume that was nearly 50 percent above the daily average.

Banking on Pent-up Demand

Over the course of the COVID-19 pandemic, which has sent Macau monthly gross gaming revenue (GGR) figures tumbling this year, operators are conveying two battle cries to analysts and investors.

First, while the coronavirus outbreak is a new phenomenon to Americans, China previously grappled with viral pandemics. Second, as a result of that familiarity, operators say there’s precedent for demand rapidly rebounding when health scares are put to rest.

History repeating is critical for the likes of LVS, Melco, and Wynn. In the case of Melco, that company has no US exposure and relies heavily on the Asia-Pacific region to drive revenue and earnings. Regarding Sands and Wynn, those operators own five integrated resorts combined in the US. But in any given quarter, both are generating two-thirds or more of their turnover in Macau.

As highlighted by today’s action in the aforementioned gaming equities, news of the easing travel restrictions with Guangdong is positive. But there are still some hurdles to clear. For example, tourists moving between Hong Kong and Macau face two-week quarantines on both sides of their journeys. Additionally, there’s still no visibility as to when Beijing will lift the ban on individual visit scheme (IVS) visa issuance — a move regarded as essential to getting Macau’s gaming industry back to normal.

Macau Exposure Proves Meaningful

While operators with significant Macau footprints surged today, the opposite is true of their domestically focused rivals. MGM Resorts International (NYSE:MGM), which runs two venues in the Chinese territory, added 1.11 percent — a gain that looks tepid compared to its rivals.

On news that coronavirus cases counts are surging in states such as Florida and Texas, and that California is implementing another shutdown, traders ditched Las Vegas-heavy and regional gaming names today.

As just three examples of that trend, Boyd Gaming (NYSE:BYD), Eldorado Resorts (NASDAQ:ERI), and Penn National Gaming (NASDAQ:PENN) all closed in the red Monday, with Boyd ranking as the best-performing member of that trio with a 1.09 percent drop.