Macau: Is now the time to invest?

Following the Macau casino industry's worst month since the Covid-19 pandemic began, the team at Gambling Insider debates whether now is actually a good time to invest in the gambling hub.

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Following the Macau casino industry's worst month since the Covid-19 pandemic began, the team at Gambling Insider debates whether now is actually a good time to invest in the gambling hub.

With stocks potentially low and an eventual uptick potentially sizeable, should investors consider the region more than ever right now – or are Macau's struggles set to do it longer-term harm?

Yes: A market primed to roar again

In 2019, Macau was unsurpassable. Gaming revenue from the region’s casinos exceeded US$29bn for the full year. By comparison, its biggest competitor worldwide, Las Vegas, recorded US$6.6bn in revenue (with wider Nevada generating over US$12bn). The difference was stark.  

Macau’s roaring success, becoming the world’s most lucrative gaming region, showed no signs of slowing down. That is until the Covid-19 pandemic struck in early 2020. As with most industries, Macau’s revenue plummeted, dropping 79% for the full-year 2020 to US$7.57bn. Travel restrictions and lockdowns peppered the region’s 2020 calendar, but it was the same everywhere – for the most part.  

It would be a stretch to say that 2020 specifically would have been the best time to invest in Macau’s gaming industry – markets were down globally, in nearly all industries. But from mid-2021 onwards, there was a clear divergence in performance between Vegas and Macau. The roll-out of the world’s first Covid-19 vaccine represented the beginning of the end, in Western markets at least, and Las Vegas saw a significant change in fortunes. The Strip saw a 40% revenue increase year-on-year, taking a record US$7bn amount. However, Macau’s yearly revenue only reached US$10.82bn, and although still higher than Vegas, revenue majorly underperformed on the US$29bn reached in 2019. 

China’s zero-Covid policy, adopted in Macau, was seriously hindering the region’s performance. Analysts from all over began to wonder just when China’s special administrative region would recover, amid intermittent lockdowns and blanket travel restrictions. And, as 2021 drew to a close and 2022 began, markets were indicating that 2022 could be the start of Macau’s comeback. 

Mid-February of 2022, in particular, saw the stocks of Macau’s six-concession holders rise. On 18 February 2022, Wynn Macau’s stock stood at HK$7.71 (US$0.98) per share. This was a 40% growth in the operator’s stock value just over a month earlier – HK$5.51 on 20 December 2021. Likewise, on 17 February 2022, MGM China’s per share price was HK$5.88, up a marked 41% on 20 December 2021. Furthermore, Sands China’s share price was HK$24.05 on 18 February 2022, up from HK$16.28 on 20 December 2022. The trend was region-wide, as optimism around Macau’s recovery grew.  

This optimism was short-lived, though, with the Government of Macau insistent on maintaining strict travel regulations. People from Macau’s neighbouring regions, the Guangdong province and Hong Kong, were restricted from entering Macau unless willing to adhere to lengthy quarantine requirements. This was important; inbound travel from Hong Kong has represented a healthy chunk of Macau’s revenue for many years. So, with a lack of tourism came a drop in the share price of Macau’s operators once more.  

"I find it funny that people question Macau's return. Of course, it's been a hard couple of years no question. You've got to hunker down and wait for it to turn. The idea that the situation won't turn around is hard to imagine, but it probably will turn around this year or next. And when it does, Macau will go back to making [what it used to]" Robert Goldstein, Las Vegas Sands CEO

Recently, things have gotten worse. July 2022 saw Macau suffer its worst outbreak of Covid-19 since the pandemic began in 2020. Although the region is now on the other side of this, getting there took a hefty toll, with stringent lockdown measures. Revenue for July dropped a staggering 84% month-on-month, and 95% year-on-year. What’s more, July was but another month of 2022 in which Macau recorded a double-digit revenue decrease. In fact, every month has seen a double-digit loss with the exception of February. 

Subsequently, stock prices in Macau’s operators dropped significantly (again) – only recovering marginally in August 2022. As of 8 August 2022, Wynn Macau’s stock price per share still languishes at HK$4.91, MGM China’s slumps at HK$4.11 and Sands China’s is on the decline at HK$17.60. 

Although this all seems like a litany of negativity, it should not be seen as such. More so, it is the basis for why Macau is so investable now. It is only through these hardships that the region is primed for investment. Markets are more unsure about how to predict Macau than ever – so now is the moment to put money into a region with enormous potential.

Just look at how well Las Vegas and Nevada are doing now, with the latter having just posted its 16th consecutive month of over $1bn in gross gaming revenue. Remember those figures we mentioned earlier? Just imagine how much pent-up demand there is in Macau – and how much revenue will be generated when activity is back to pre-pandemic levels.

One thing has remained a universal surety among analysts, investors and businesses: Macau will recover. We see this in the willingness of operators to extend their stay into the region’s new concession period starting in January 2023. SJM Holdings, one of the hardest-hit operators in Macau, has even taken out a HK$2bn loan from its parent company to afford its new concession licence.

This highlights one thing: the operator believes that the region will recover. At a CNBC Evolve Summit this July, Las Vegas Sands Chairman and CEO Robert Goldstein said: “Macau? I find it funny that people question Macau's return. Of course, it's been a hard couple of years no question. 

“You've got to hunker down and wait for it to turn. The idea that the situation won't turn around is hard to imagine, but it likely will turn around this year or next. And when it does, Macau will go back to making [what it used to].” 

Goldstein’s sentiment is, broadly speaking, shared industry-wide. As such, it’s clear that now is the perfect time to invest in Macau. Stock prices remain low, while prospects for future recovery appear more a formality than a possibility. It would not be surprising in the slightest to see the region’s stock prices start to rise further soon, as Macau gets back on its path to recovery following the end of its most recent lockdown.  

So, you want to invest in Macau? Now is the time to do it. 

No: A now-stagnant gaming sector?

André Cheong, the man in charge of Macau’s new licence tender, last month proclaimed a “New Era,” but as the city continues to buckle under China’s zero-Covid policy, some have questioned whether this will be an era of prosperity or further hardship.

Macau was once the jewel of casino gaming, nicknamed the ‘Las Vegas of Asia;’ but while Sin City has bounced back from Covid-19, its eastern counterpart has struggled through lockdowns and tough travel restrictions.

This is a result of the city’s bigger and less liberal neighbour: China. Xi Jinping’s ruling Communist Party has implemented a strict zero-Covid policy and Macau has followed suit.

This stands in stark contrast to Western states, such as the UK – which has opted to “live with Covid-19” – and while neither strategy is 100% foolproof, the past few months have highlighted a glaring issue with zero-Covid, at least for somewhere like Macau.

The city, and in particular its casinos, are heavily dependent upon tourism. However, tough testing requirements have periodically made it very difficult for visitors to enter Macau, even those from Mainland China and nearby Hong Kong.

Combine this with the occasional lockdown and you get a stagnant gaming sector. In mid-July, Macau ordered all non-essential businesses to close, including, for the first time since February 2020, casinos.

The results were instantaneous. Prior to this, Macau’s gaming industry was limping very, very slowly towards a recovery, but the city’s recent lockdown ended all hopes for it to gain momentum – at least anytime soon.

Ultimately, the question is: will Macau’s gaming sector recover soon enough for it to matter? As long as China insists on pursuing a zero-Covid policy, it’s unlikely

Gross gaming revenue (GGR) for July was down 95% year-on-year, and 84% when compared to June. But in perhaps more devastating news, Macau recorded its worst monthly performance since the pandemic began – worse than any month on record. 

The city generated MOP$398m (US$49m) for July, falling from MOP$8.44bn year-on-year and from US$2.47bn on a sequential basis. But while last month was especially bad, so far this year, every month except February has seen Macau post double-digit GGR decreases when compared to 2021.

Prior to Covid, Macau’s GGR exceeded MOP$20bn month after month; but since February 2020, the city hasn’t even managed to break the MOP$10bn mark – with the sole exception of May 2021.

To compound the city’s woes, nearby markets such as the Philippines have gradually eaten into its share of East Asian gamblers. This was ongoing before the pandemic even began, but Macau’s Covid struggles have only accelerated the trend.

And if we look at Macau operators, we see a similar decline. MGM China recorded a 46% revenue drop for H1, while SJM Holdings posted a 25% decrease. Both operators’ share price, meanwhile, is down from the start of 2022. When compared to Bloomberry Resorts, for example, their performance looks even worse. The company’s Solaire property in the Philippines has helped it rebound from Covid-19, with revenue up 112% for Q2.

Ultimately, the question is: will Macau’s gaming sector recover soon enough for it to matter? As long as China insists on pursuing a zero-Covid policy, it’s unlikely. Even the city’s leaders know this to be true. Earlier this year, Chief Executive Ho Iat-seng said economic diversification was a core component of Macau’s recovery plans.

Macau’s new gaming bill won’t necessarily be casinos’ saving grace either. Far from being favourable to them, it includes a slight tax hike and grants the government greater oversight. What’s more, while Macau’s neighbour to the north looms large, gambling will forever be under threat. Gaming is outlawed in China, but the economic titan hasn’t (yet) stepped in to stop casinos from operating in Macau. However, this could be coming to an end.

Communist Party officials are keen to meddle in Macau’s affairs, and have repeatedly attempted to stop high rollers from visiting. Also of concern to China are the number of American-owned companies, such as MGM China and Wynn Macau, that operate there.

So what do you think: Is now a good time to invest in Macau?

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