NEW LICENCES SEND CASINO STOCKS UP
Operators trading in HK close higher following renewal of their concessions by Macau authorities
A gauge tracking six Macau casino stocks trading in Hong Kong and the United States jumped 6.8 per cent yesterday, defying a 1.6 per cent decline on the Hang Seng Index, as investors placed bets on the operators that prevailed in the concession bidding process.
Leading the charge, Wynn Macau surged 15 per cent and MGM China Holdings rose 13 per cent as all five gaming operators trading in Hong Kong closed higher.
The Macau government renewed the concessions of the city’s six incumbent gambling operators for 10 years on Saturday, leaving Malaysian tycoon Lim Kok
Thay, who submitted a surprise bid to break into the world’s largest casino hub, on the outside looking in.
JPMorgan said it was bullish on the casino stocks as it expected to see current stock set-ups to be favourable going into 2023, with low expectations, very light positioning and cheap valuation.
“There’s plenty of headroom in equity upside if valuations are to normalise,” D.S. Kim, JPMorgan’s head of Asia gaming research, said in a report on Sunday.
The casinos were selected for concessions based on a scoring system. While the nature of the evaluation was not released, analysts pointed to stable employment, global exposure, and non-gaming commitment as deciding factors, which put MGM China on top and Genting Group at the bottom.
The six concessionaires will need to focus on non-gaming elements, which can include sports, art and cultural events and health and community tourism. The exact details of each casino’s plan is now being negotiated with the local government and the final agreements will be closed in December.
Despite being the smallest operator, MGM China has strong global exposure, which puts it in the best position to bring non-Chinese tourists to Macau, according to a Goldman Sachs report released on Sunday.
The Macau industry had always been reliant on customers from the mainland but with
China’s unattractive quarantine policy, a meaningful recovery of the sector remained uncertain, the report added.
Genting Malaysia did not “stand out” compared to the other casinos and the new licences to the incumbents once again “shows the Macau government’s pragmatism towards the gaming industry”, said George Choi, director and head of global gaming research at Citi Research.
UBS analysts echoed the sentiment, saying this was “the best outcome” for Macau’s gaming industry, as it “ensures a seamless transition” into the next concession period”, which starts on January 1.
Separately, Wynn Resorts said it would undertake a capital restructuring a day after Macau’s government renewed the gaming licences.
The company said the voting rights, through class A nominative shares, of vice-chairman and executive director Linda Chen would be increased from 10 per cent to 15 per cent.
The change has been implemented to comply with the amended gaming law, which applies to the new lot of concessionaires and requires the managing director of a casino to hold at least 15 per cent of the concessionaire’s share capital.
The company’s registered capital would be increased from HK$193.7 million to HK$4.84 billion, Wynn said in a filing on Sunday evening.
In turn, the company’s voting rights through its indirect holding of class B and class C nominative shares will be reduced to 85 per cent from 90 per cent.
There’s plenty of headroom in equity upside if valuations are to normalise
D.S. KIM, JPMORGAN’S HEAD OF ASIA GAMING RESEARCH