Macau casino stocks shed $14bn as government seeks greater oversight

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Gambling industry updates

The Macau government’s drive to increase oversight of casinos wiped $14.7bn off the market value of listed gambling operators, as analysts warned that stringent regulations could squeeze margins already strained by the Covid-19 pandemic.

The shares of Sands China and Wynn Macau tumbled more than 24 per cent on Wednesday while rival Galaxy Entertainment fell more than 16 per cent in Hong Kong trading. MGM China, Melco International and SJM Holdings each shed between 15 and 18 per cent.

The price falls came as the Chinese territory opened a 45-day public consultation on revising its gaming law, which is expected to step up scrutiny of operators in the world’s biggest gambling hub. Casino groups’ 20-year concessions to operate in Macau are set to expire next year.

The authorities’ move to tighten control of casinos is also proceeding as Beijing embarks on a broad campaign to reshape the country’s business, political and cultural landscape in a bid to stamp out inequality and promote “cultural prosperity”.

Chinese regulators have imposed stringent conditions on the country’s biggest companies in the tech, online education and video gaming sectors, and authorities have targeted social behaviours perceived as harmful.

A draft version of the gambling law indicated that the government planned to add its own representatives to the boards of casinos that hold concessions in Macau, the only jurisdiction in China where they are legal.

The law is also expected to cover the number and duration of concessions for casino operators, giving authorities substantial leverage over the Chinese territory’s largest employer and main driver of economic growth.

Casino operators have also been weakened substantially by the pandemic, which throttled the vital flow of mainland Chinese tourists to the city.

Gross gambling revenues are down about 80 per cent from pre-pandemic levels, according to figures published by Macau’s Gaming Inspection and Coordination Bureau.

JPMorgan downgraded all six Macau casino operator to underweight or neutral on Wednesday on concerns of the increased government scrutiny. The stocks were all previously rated as overweight.

“We think this announcement would have already planted a seed of doubt in investors’ minds, which is probably enough to de-rate these names until clarity emerges on key points,” JPMorgan analyst DS Kim wrote in a note.

But some analysts remained sanguine on the potential impact of the law consultation. George Choi at Citi acknowledged that markets might take a dim view of the latest announcement, but maintained that “all the suggested revisions [of the law] are there to enhance long-term sustainable growth”.