Macau’s Gambling Industry: Buy Before The Gains Are Gone

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With gambling being the no.1 attraction of the autonomous region of Macau, the harsh travel restrictions have contributed to severe declines in tourism and consequently massive losses.

Covid-19 has affected large and small countries alike, yet the autonomous region of Macau is likely the one worst hit in 2020. Gross Gaming Revenue (GGR) has been down almost 83% throughout nine months compared to last year, with revenues cut from $22.8 billion to $4.8 billion.

Needless to say, the gambling market has plummeted during the pandemic. Did they all go into the stock market?

Even the Golden Week, one of the largest annual gambling days for Macau, proved to be disappointing. This one-week Chinese holiday period that historically acted as the single largest revenue gain of the year for Macau gaming was underwhelming this year, down 76% year-to-year compared to 2019.

Experts have said this performance was expected though, and it’s difficult to break these expectations during today’s landscape. Does that mean the end of many casinos in Macau or even in the world?

Some analysts would disagree, and in fact the gaming industry may be showing some signs of recovering already. As the pandemic restrictions begin to lift throughout the world, casino visits start increasing. We see this is the case for Macau’s casino numbers.

50% of local demand for casinos have recovered in Macau, while 70-100% have recovered in casinos elsewhere.

This leads investors to believe that there is still much more room to grow for the current state of gaming in Macau. Consistent low cases of the virus in both Macau and its bordering locations will prove to be a helping hand in regaining trust in consumers and tourists alike. As people slowly restore confidence, so will travel and thus consumption.

In fact, travel restrictions are already beginning to lift between China and Macau. The Individual Visit Scheme (IVS) is a permit that allows for no-quarantine travel between the two regions. Effective September, people can now visit Macau with this special permit.

Travellers are still required to show negative Covid-19 test results while passing through the borders though, but local industry leaders have been pushing for more lax testing requirements.

Analysts say there is hope for a swift revival of the gaming industry in Macau, and the key is a expedited visa progress.

The current visa process takes up to two weeks to obtain, and along with strict Covid-19 testing, many visitors are simply hindered by the absurd amount of effort it takes. Once these processes are improved, we could potentially see mainland visitors flooding the gaming hubs of Macau again. For international visits to recover, global travel still needs to improve significantly.

It has not only the casinos that have been bleeding. Where Macau’s gambling revenue goes, the rest of the city follows.

    • Retail rents, driven by luxury-goods brands that depend on gamblers flush with cash, have cratered 20.7% in the first half of 2020.
    • High-street property values are similarly down a 21.3%.
    • Luxury apartment values have plunged 10.4% in the first half of 2020, with mass-market property down 5.5%.

Three-quarters of the city’s tax income comes from the casino tables of 40-some casinos. These are of course tightly licensed by the city.

The casinos have been mandated to maintain employment, leading to each casino bleeding around $2 million in costs every day.

After the storm, the sun will shine. So, there is hope for the future of casinos in Macau.

In fact, don’t expect demand to skyrocket from here on out. With better visa processes and a gradual restoration of faith in traveling, the ‘Las Vegas of Asia‘ will soon start to recover. 2021 will be a bumpy ride, with fluctuations in the infection rates and consequently tourist flow. Eventually international guests will join the show.

The main casino stocks to watch are Sands China SCHYY, Wynn Macau WYNMY, MGM China MCHVY, Melco Resorts & Entertainment MLCO and Galaxy Entertainment Group GXYYY.

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All with multibillion dollar market cap American parent companies – except for Melco and Galaxy – and with vested interest of China’s government in maintaining Macau as a sweet money making machine is greatly reducing any risk of bankruptcy for these stocks.

We expect the ‘Las Vegas of Asia’ to be shining again, and regain pre-covid-19 levels in early-to-mid 2022. There is value in these stocks for a long-term play and you’d ought to get in before all the gains are made.

 

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Morgan Tseng

Morgan Tseng is a senior studying Business Economics and Business Information Management at University of California, Irvine. He has a background in research and analytics as he spent a quarter participating in the research of the Development Finance Corporation and its effects on developing countries. He is passionate about the investing landscape today, and the ebb and flow of bull and bear markets. He believes that credibility and ethics are the most important parts in business. In his spare time, he loves to play the guitar and piano.

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