Macau Casino Stocks Expected To See Short Term Summer Rally

Analysts are expecting to see a revival in Macau’s casino stocks in the summer months after a prolonged slump. The gross gaming revenue in June fell by 8.5% to MOP15.88 billion (US$1.99 billion) which was the lowest ever recorded since September 2010. Analysts however expect Macau’s casino stocks to bounce back in the coming months as they witnessed a 17 percent decline since spring.

One of the factors that could play a significant role in Macau’s casino revival is the introduction of an online gaming ban in the Philippines. The country’s newly elected President, Rodrigo Duterte recently stated that he plans to cancel all the online gambling licenses that have been granted in the past.

In a statement, Vitaly Umansky, an analyst from Sanford C. Bernstein said

The latest scrutiny could be a net positive for Macau casinos as these websites have previously targeted gamblers in China. More importantly, it is unclear if any new government regulation or legislation could also target proxy betting in the form of online video streams occurring in junket rooms within Philippine casinos.

According to Umansky, Philippine junkets typically receive higher commission rates in such gaming services which are said to be around 1.3 to 2.1 percent of rolling chips. Umansky believes that the online gambling ban in the Philippines will have a direct impact on the revenue of Macau’s offline casinos.

Karen Tang of Deutsche Bank AG said that in the last two years short-term rallies had been observed through July-August due to better performance of the casinos in the summer holiday season. She said that rather than a cyclical upturn this was due to seasonality being more prominent this year, leading to expectation of improved sentiments.

According to Tang three key catalysts could trigger the rally. The first is that the six-year low seen in casino revenue in June is likely to be followed by an improvement in July. The second is the slated openings of the Parisian Macao from Sands China Ltd and Wynn Palace from Wynn Macau Ltd which are both scheduled to open before September 2016. The and final catalyst is that the second quarter results for the year which will be released shortly is likely to confirm that high margin mass market segment is performing better than the VIP segment and is gaining in prominence.

Analysts from Sanford have also observed there has been an increase in VIP gamblers being managed directly by the casino house rather than through junket operators. According to Sanford, although the credit risks are higher in this model, the profitability is also higher. They added that since the VIP EBITDA currently represents only 20 percent of overall EBITDA, the level of risk is relatively low.

Adrian Sterne

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