JP Morgan: Gaming sector currently ‘un-investable’

The city’s gaming sector could stay “un-investable” until clarity is given on the next concessions, brokerage JP Morgan noted.
A note by its analysts DS Kim, Amanda Cheng, and Livy Lyu, said investors should remain cautious, as clarity on this matter is “unlikely in the next six months.”
The surprise about the proposed gaming law came two weeks ago when Secretary for Economy and Finance Lei Wai Nong announced that concessionaires will be under tighter scrutiny from the government which will have greater authority to verify the background of the staff hired by concessionaires as well as the staff of entities who work with them.
The city’s gaming operators and junkets sought clarity following the announcement of the proposed changes to the SAR’s gambling laws which wiped off over USD18 billion in stock market value.
“We interpret the government’s surprise announcement as an effective “SOE-rization” [state-owned-enterprise model] of the industry, which makes it difficult to establish a floor for both earnings profile (deterioration in efficiency, plus possible national service),” the JP Morgan analysts said.
Previously, JP Morgan gaming analyst Joe Greff lowered his firm’s ratings for casino operators following policy changes.
According to Greff, Macau is “sort of requiring” the industry to boost its spending on non-gaming projects – not just in Macau but also in Hengqin – as a factor for concession renewal. The proposed gaming law would require casinos to increase the percentage of share capital held by permanent residents of Macau – an initiative to maximize the economic value of the industry.
On September 15, Sands China led the plunge, with its shares dropping by 32.5%. Wynn Macau shares tumbled 29%, followed by MGM China who gave up 27% in share value. Local operator SJM Holdings shares dropped 24%, while Melco International and Galaxy Entertainment Group share prices dropped 20%.