Macau September Numbers Won’t Be Great, But Analyst Advises Sticking with Las Vegas Sands

Posted on: September 1, 2020, 12:15h. 

Last updated on: September 1, 2020, 03:04h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Gross gaming revenue (GGR) in the casino enclave of Macau slid 94.5 percent in August, marking the fifth consecutive month of declines of at least 90 percent. It’s going to take a while for recently loosened travel controls to have a positive impact on concessionaires’ top and bottom lines.

On a year-to-date basis, GGR in the world’s largest gaming center is off 82 percent, and on the heels of the rough August number, some analysts are ratcheting down 2020 forecasts.

For example, Stifel analyst Steven Wieczynski lowered his estimate on Macau’s 2020 revenue decline to 65 percent to 75 percent from a previous call of a drop of 60 percent to 70 percent. The ConsensusMatrix forecast calls for a retrenchment of 73 percent.

The waiting game continues. While a 94.5% drop in GGR might normally cause a panic reaction, we would expect to witness a relative no reaction to the August Macau GGR results,” said the Stifel analyst in a note to clients today. “We fully believe investors understand what the Macau market is up against at this point and remain prepared for an uncertain near-term time frame.”

Last month, the city of Zhuhai in Guangdong province started reissuing tourist visas, with the rest of the region doing so on Aug. 26. But with approval times taking a week or longer, it was widely expected that good news wouldn’t have any impact on August GGR figures.

Nearing the Bright Side?

With the freeze on individual visit scheme (IVS) visas lifted in Guangdong, and the rest of the mainland slated to follow suit on Sept. 23, there are reasons to believe the last few months of 2020 will bring better data out of the Chinese gaming center.

There does seem to be light at the end of the tunnel, as visitation levels are slowly improving, given the recent IVS ban has been lifted,” said Wieczynski.

Over the near-term, a primary issue for Macau operators is that VIP and premium mass players are still in wait-and-see mode. Those well-heeled gamblers could be waiting for the arrival of Golden Week in early October or waiting out increasing geopolitical friction between the US and China. Either way, operators such as Melco Resorts & Entertainment (NASDAQ:MCLO) and Wynn Resorts (NASDAQ:WYNN) need VIP visits to materially rebound to drive share price appreciation.

Stability in Macau could be seen as soon as later this year or in early 2021, according to Wieczynski.

One Good Idea

Consensus sentiment is that Macau will bounce back faster than other marquee gaming markets, namely Las Vegas and Singapore, and that’s to the benefit of Las Vegas Sands (NYSE:LVS). The operator of five integrated resorts in the special administrative region (SAR) isn’t just the biggest concessionaire there, it’s also one of the most financially sound.

Additionally, the bulk of LVS’ Macau clientele is in the mass and premium mass categories, meaning the company isn’t dependent on VIPs to drive revenue.

“Although we expect lingering Chinese macroeconomic uncertainty and virus fears to elevate trading volatility in the near term, we see nothing out there at this point capable of tempering our long-term enthusiasm on the name,” said Wieczynski.

The analyst, who rates LVS a “buy,” adds the operator has an “unrivaled scale,” and recent weakness in the stock is an opportunity for investors to get involved.