The possibility of a fresh fiscal stimulus package by authorities in mainland China could help push up the valuations of Macau casino stocks. That is according to a note from U.S.-based brokerage CBRE Securities LLC.
“In the current environment, confidence in economic conditions will likely continue to be a greater driver of Macau gaming equity price performance rather than fundamentals,” wrote analysts John DeCree and Max Marsh in a Thursday memo.
They added: “With that in mind, any economic stimulus in China would be a meaningful catalyst for Macau casino stocks, which we expect would outperform the Hang Seng [Index in Hong Kong] on the way back up.”
CBRE pointed that, “in spite of the continued recovery in Macau [casino sector] and relatively positive outlook, shares of both U.S. and Hong Kong-listed Macau gaming stocks traded sharply lower over the past month, declining an average of 17 percent in May, and appear oversold relative to the Hang Seng Index, which declined 9 percent in the month.”
A number of investment analysts – including CBRE – have linked the price decline in stocks of Macau names with the threat of an economic slowdown in mainland China.
In a recent interview with GGRAsia, JP Morgan Securities (Asia Pacific) Ltd analyst DS Kim said that “a lot of global ‘long’ investors are seemingly reducing exposure to China consumption stocks”, partially due to fears raised by weaker-than-expected macro-economic indicators. The sell-off, he added, seemed to also be impacting Macau casino operators.
There has been much speculation in financial media in recent weeks about the possibility of a fresh stimulus package by mainland China authorities, as the country’s much-vaunted economic rebound post-Covid-19 has yet to fully materialise.
In its Thursday note, CBRE also commented on Macau’s casino market performance in May. The city recorded gross gaming revenue (GGR) of MOP15.57 billion (US$1.93 billion) for the month, up 5.7 percent from MOP14.72 billion in April. GGR rose sequentially for the third consecutive month.
Mr DeCree and Mr Marsh noted that the pace of recovery had moderated in May, with GGR for the period amounting to a 60-percent recovery to the same month in 2019. “This is a slight deceleration in recovery compared with April’s 62-percent GGR recovery to the same month in 2019,” they said.
The analysts added: “While the pace of the recovery moderated a little in May, we still expect continued sequential growth in the coming months and quarters as travel capacity increases and more hotel rooms and amenities open in Macau.”
CBRE also said it expected earnings recovery to outpace GGR recovery in the Macau market, as operators were benefiting from cost saving initiatives and also from a “greater mass market mix” – a segment with higher margins than VIP – relative to 2019.
