Casino operators with significant Macau footprints are among 2021’s worst-performing gaming equities, but a slew of disappointing showings this year could set the stage for 2022 rallies.
In a note out earlier this week, Morgan Stanley analysts draw parallels between the current of state of affairs for Macau casino stocks and 2016. At the time the report was published, the combined market capitalization of concessionaires in the special administrative region (SAR) was $58 billion, barely above the $53 billion seen at the start of 2016.
The January 2016 market capitalization figure is the second-worst on record for Macau operators following mid-2011, which was soon after the worst days of the global financial crisis. It remains to be seen if history will repeat in terms of a rebound, but analysts are encouraged by 2022 prospects for Macau operators.
We see a similar trend in 2022, where year-on-year growth will accelerate even though it’s still at a lower level than 2019. This should drive outperformance in 2022,” said the Morgan Stanley analysts.
The bank’s assessment comes soon after the arrest of former Suncity boss Alvin Chau, which analysts believe marks the end of the Macau VIP junket era.
Macau Stocks Looking to Shake Laggard Status
Like their domestically focused counterparts, Macau casino stocks were drubbed at the onset of the coronavirus pandemic in 2020. While the SAR’s shutdown of gaming properties was shorter than what was seen in the US, the subsequent rebound in gaming equities was more intense for domestic names.
Said another way, Macau casino equities are notching a second consecutive year of under-performance relative to not only US counterparts, but Hong Kong’s Hang Seng Index as well. The Hong Kong comparison is relevant because that’s the listing domicile for Macau concessionaires.
Using the aforementioned 2016 precedent as a guide, Morgan Stanley sees opportunity for Macau operators to shed their laggard ways in 2022.
“GGR growth in 2022 should drive outperformance like 2016,” the analysts said. “Macau stocks’ market cap bottomed in January 2016, roughly 12 months after GGR growth year-on-year bottomed at -50% in early 2015,” said the bank. “But by January 2016, GGR growth rate was -20% and it was visible at that time that year-on-year would turn positive sometime in the later part of 2016. This drove a material stock price rebound of 26% year-on-year in 2016.”
Work to Be Done
Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) — the most Macau-centric US-based gaming companies — are off an average of 33.14 percent year-to-date.
Those names and rivals are being dragged lower by lingering travel restrictions, lack of clarity on 2022 license renewal and heightened regulatory fears.
“Each of these events will provide clarity even if the Macau Chief Executive temporarily extends the licenses beyond June 2022, which we expect could be announced by in 1Q22,” according to Morgan Stanley.
Some market observers believe the reshaping of the Macau market to more premium mass in the wake of the Suncity fiasco will benefit Sands due to its focus on mass and premium mass players. Likewise, analysts see opportunity for Wynn to rebound if the company adapts to a new look Macau and broadens its US revenue set.
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