WSJ recommends stocks of companies more exposed to mass-market
Gamblers “have started placing bets in Macau casinos again. Investors are piling back into Macau casino stocks too,” The Wall Street Journal (WSJ) reported yesterday after January results were announced by the DICJ.
The American financial paper warned that “picking which casino stocks to plunk chips on will be important.”
January gambling revenue was up 82.5% from a year earlier, to its highest level in three years.
Moreover, the revenue rebound is outpacing the return of tourists themselves: Visitor arrivals during the holiday were still less than 40% of 2019 levels.According to the WSJ, Citi provided some interesting color on such ‘whales’ after the bank’s analysts visited the casinos: “At a baccarat table, a player wagered HKD725,000 Hong Kong dollars, equivalent to $92,000, in a single bet. Another gambler had HKD6 million of chips stacked in front of him. More-casual gamblers will likely stream into the city in the coming months as the exit wave of infections in China starts to ebb.”
VIP gamblers used to generate more than 70% of Macau’s total gambling revenue, but their importance was already declining—in 2019, they accounted for less than half. “Their significance will likely drop even further.”
The Wall Street Journal points out that Macau wants to reduce its reliance on gambling while China wants to stop capital outflows through illicit channels – citing as an example the recent 18-year jail sentence the first court served to former junket boss Alvin Chau.
Macau casino operators also need to contend with higher debt loads than before the pandemic. Profits will start rebounding this year, but the extra debt burden will chip away at that to an extent, the paper adds.
The WSJ says that “on average, Macau casino operators’ stocks have more than doubled in value in the past three months, with some justification. But as share prices start to price in the recovery, investors should focus on companies with stronger financials and an edge in attracting mass-market customers, like Galaxy Entertainment or Sands China.”
“Macau will finally draw some winning hands this year, but the takings won’t be distributed equally. Investors should pick operators that can best navigate the new, mass-market-focused landscape,” alerts the Journal. PC
