Posted on: December 8, 2022, 05:04h.
Last updated on: December 8, 2022, 05:41h.
Since the coronavirus pandemic forced a 15-day closure of Macau casinos in February 2020, it’s been a long, often turbulent road for shares of concessionaires in the special administrative region (SAR). But light may be emerging at the end of the tunnel.
Some analysts believe that with 2023 looming, Macau-heavy names, including Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), could finally be ready for more adulation from investors. That’s as China looks to reconsider its zero-COVID policy — one that’s been crippling for Macau operators.
There seems to be clear signs coming out of Beijing that COVID limitations/restrictions are indeed going to be eased/reduced. Investor interest in Macau-centric stocks has been pretty much close to zero for the last two years given the significant COVID/license renewal overhangs and political risk(s),” wrote Stifel analyst Steven Wieczynski in a recent report.
The analyst reiterated a “buy” rating on both LVS and Wynn, while boosting his price target on the former to $55 from $50. He lifted his price forecast on Wynn to $109 from $85.
Overhangs Abating for Macau Stocks
While there’s considerable fluidity regarding the Chinese Communist Party’s (CCP) plans to ease zero-COVID protocols and reopen the world’s second-largest economy, other headwinds that previously confounded Macau stocks are abating.
For example, authorities in the SAR recently approved a fresh set of 10-year gaming permits for the six established concessionaires. That removes not only removal risk, but the possible specter of Genting entering the market by pilfering a license from an entrenched competitor.
With overhangs abating, some investors are starting to incrementally nibble at Macau stocks, indicating the asset class may have momentum heading into 2023. For its part, LVS is up 28.35% year-to-date — a stellar showing relative to the broader market and other casino equities. The company’s Sands China unit runs five integrated resorts in Macau.
“We believe the setup is compelling for Macau-centric names heading into 2023. Stocks have massively underperformed our coverage universe (outside of cruise operators) since the beginning of the pandemic. LVS/WYNN are down ~35% since early-2020 versus the rest of our U.S. gaming coverage that is up ~35% (S&P +24%),” added Wieczynski.
GGR Growth Could Boost Macau Stocks in 2023
As a result of the zero-COVID policy and related travel restrictions, Macau’s 2022 gross gaming revenue (GGR) is likely to be the SAR’s worst since the market opened to foreign competitors nearly two decades ago. Wieczynki notes GGR there is running at just 10% to 15% of pre-pandemic levels.
If there’s a silver lining, it’s that those percentages are unlikely to decline further, and history shows increases in Macau GGR often facilitate upside for the related equities.
“Our belief is that Macau should slowly recover in 1H23 which should lead to improved investor sentiment that should allow for outsized performance across the Macau-centric names after two years of massive underperformance,” concluded Wieczynski.