Brokerage JP Morgan has upgraded gaming operators Sands China, Wynn Macau and MGM’s risk/reward potential overweight, noting that the ongoing Covid-19 crisis is for the most part no longer affecting gaming stocks.
“Recent bad news (e.g. HKSAR outbreak, China Omicron cases, delays in travel bubble) do not seem to move stocks anymore. We see this as testament to low (to no) investor expectations and positioning,” analysts at JP Morgan said, as cited in a report issued by Asia Gaming Brief.
The brokerage said that, at current stock levels, investors seem to have pessimistic expectations which have been permanently lowered by about 20 to 30%, and that several were de-rated 8 to 10 times, according to the report.
The brokerage added that the results of the recent public consultation on the gaming law amendments indicate no reason for great concern.
Following uncertainties amid the Covid-19 crisis, the subsequent economic fallout, and the strict border measures implemented by the city, JP Morgan previously said that it would not attempt to forecast the city’s gaming recovery for 2022.
The brokerage reiterated that the degree of recovery of the gross gaming revenue (GGR) from casinos is dependent on the “pace and level of travel normalization around the region.”
Credit rating agency Fitch Ratings set Macau operators and their respective credit complexes as Rating Watch Negative (RWN) back in December, given the imminent regulatory risk arising from the expiration of gaming concessions on June 26.
However, the firm expects further clarity to emerge this year in relation to these regulatory issues and the sustainability of mainland Chinese visitors – though this is not guaranteed.
JP Morgan assumed in its modeling a zero-junket revenue, as Macau grapples with both a tourism recovery and junket and VIP headwinds following the arrest of junket mogul Alvin Chau over illicit gambling and money laundering charges.
It added that the impact of the loss of the higher rollers is not of great consequence.
