Despite a recent rally in Macau gaming stocks, research house CBRE Equity is recommending investors increase their holdings, saying valuations remain low.
In a move that could signal a resurgence in gaming industry, CBRE Equity Research is encouraging investors to “double down” on Macau gaming equities, despite a 23.7% average rally in share prices over the past week.
The sudden surge comes on the heels of a series of stimulus measures announced by the Chinese government, which CBRE’s John DeCree has described as China’s most aggressive since the pandemic.
According to DeCree, the stimulus measures, which include cutting short-term interest rates, reducing the amount of cash banks must hold, and increasing listed SOE share buybacks, have acted as a “green light” for investors in Macau. He noted that even with the recent rally, Macau gaming equities have underperformed the S&P500 over the past year, and their valuations and forward estimates remain “undemanding,” suggesting more upside potential.
“Even after last week’s rally, the average one-year forward EV/EBITDA multiple for Macau gaming equities is 9.2x, a two-turn discount to the group’s 2019 average of 11.2x,” DeCree said. “Consensus estimates in aggregate imply 7.3% revenue growth for Macau in 2025, which could prove to be overly conservative if stimulus measures are successful.”
CBRE’s top pick for Macau is Las Vegas Sands, which has the largest hotel room inventory and retail footprint in the region and is therefore best positioned to capitalize on increased demand and visitation. Wynn Resorts is also highlighted as presenting good value. However, DeCree added that the new stimulus measures should “unlock technical and fundamental value across the entire Macau gaming group.” Victoria Chan
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