A new law being discussed by Macau’s Legislative Assembly to criminalize illegal money exchange in the city’s casinos and integrated resorts is likely to negatively impact investor sentiment and further impact gaming stocks in the near-term, according to Citibank.
In a Monday note, analysts George Choi and Ryan Cheung issued a Downside 30-day Short-term View on the Macau gaming sector due to potential near term share price volatility.
“In our opinion, the news about the Macau government decision to criminalize illegal money exchange activities could bring some noise and lead to near term share price weakness,” they wrote.
“Although most players have their own legitimate ways to get their funds over to Macau and these small money touts are unlikely the main fund facilitator for premium mass players, we are afraid that this negative news could add uncertainties and hurt the already fragile investment sentiment against the Macau gaming sector.”
Citi’s concerns came on the same day that Bloomberg Intelligence noted a collective 3.4% decline in Macau casino stocks in response to Macau’s moves to criminalize illegal money exchange. This included a 5.7% fall for Galaxy Entertainment Group and 5.2% for Sands China.
As reported by Inside Asian Gaming, a new bill to be introduced will impose a penalty of up to five years’ imprisonment on anyone found guilty of exchanging money for the purpose of gambling. It also stipulates that an offense will include unsanctioned money exchange business conducted in a casino or an ancillary facility of a casino, including hotels, entertainment complexes or other commercial facilities.
Despite such short-term concerns, Citi noted that latest visitation trends continue to show that Macau remains one of the top outbound travel destinations for mainland Chinese.
It also described the currently low trading level of Macau gaming stocks as unjustified and therefore a unique investment opportunity form long-term investors.
“The share price correction on the sector year to date is overdone and beyond fundamentals, in our view,” Citi’s analysts wrote.
“What some investors are now concerned about Macau (GGR growth, sustainability, intense competition etc) cannot be worse than COVID – arguably the most catastrophic event in its history. At that time Macau had close to zero revenues and there was no visibility on reopening. Industry daily burn rates amounted to millions of US dollars and casino operators had to borrow to stay afloat.
“In contrast currently visitation has been gradually recovering, averaging 120,000 a day in early August. Mass GGR has recovered to 115% vs pre-COVID and shown positive year-on-year growth for consecutive months contrary to concerns about the weak Chinese economy to hurt demand.
“[As such], share prices of some Macau names are unjustifiably trading at below or near COVID levels and we suggest long-term investors accumulate Macau.”
