Macau’s Casino Shares Take an Upwards Turn
The tide may be turning for the Macau casino stocks, with the proposal for the city’s gambling laws now becoming more favorable for longevity. Long-awaited new gambling laws have turned out to be far less severe than previously expected. But that doesn’t spell the end of the deterioration of equity values across the Macau operator’s share prices, the recent surge in price is merely reflective of the small victory that this political win represents.
The Macau government have calmed investor nerves that were beginning to worry about the longevity and sustainability of the local casino sector, with renewed licenses and favorable conditions the future looks bright. ©dovilux/Pixabay
Macau’s casino stocks have been eating huge compounding losses for the past two years. The new COVID reality took the business models of these once hugely profitable businesses to the absolute brink of survival. With this good news comes again serious questions regarding the longevity of this industry. Whilst receiving some respite from the Chinese Communist Party is a welcomed positive, there is still the major elephant in the room; people can’t get into the Macau casinos.
Investors are incredibly motivated to turn the tides on Macau’s casinos and get back to the days of raking cash in hand-over-fist. With the Macau border becoming nearly impossible for high-net-worth Chinese businesspeople to enter. Since the COVID pandemic unleashed a surge of restrictive measures across the world, the casinos up and down the Macau strip have been struggling to drive footfall over the years.
Since a surprise unveiling of renewed gambling regulators by the city’s lawmakers this week there has been a sharp rise in the share price of Macau’s biggest gambling operators. Sands appears to be the biggest winner from the latest price action, with a jump of around 20% in the morning trading activities. So, what exactly led to this resurgence in the value of Macau’s casino market, that’s a question we’ll cover in more detail over the following sections.
5 Years Extension Given to Macau’s Casinos
The new casinos will receive an extension that has been cited as a 5-year deal after the contracts currently in place expire at the beginning of June. Some of the harshest terms of the latest deals that have been proposed between the government and the local casinos have been removed from the latest draft, this development has been incredibly beneficial for the autonomy of the casinos. The biggest example of this is the retraction of the term which required the casinos to accept a casino executive as a board member working within the company.
Another major perk centers around the financial engineering of the company. The distribution of dividends to shareholders will no longer require the approval of the government and will remain an internally managed operation. Also, the Macau government has set the cap for new licenses at six, meaning there is enough capacity for all the biggest casinos on the Macau strip to secure a brand new license deal to operate.
The recent rise in Macau share prices is highly justified given the relaxation of the restrictions on their operations. It essentially reverses the recent crash triggered by the previous legislative proposals that were tabled. But despite the relaxation of these rules, there are still many other fundamental factors surrounding the travel policies into Macau that have a far more significant impact on the financial stability of the industry.
Signs are beginning to indicate a recovery in this area of the business model. There has been a rise of around 31% since the previous year, but that current level is less than a fifth of the pre-pandemic levels. With recent crackdowns on the VIP market hitting the footfall figures hard, earnings before interest amortization and tax have proven themselves inextricably linked to the freedom of footfall. It will take much more relaxed visa policies to truly benefit the footfall, but with the recent outbreak of Omicron, it doesn’t seem like a likely occurrence until Q2 2022.
