A brokerage has upgraded Macau’s casino industry from “in line” to “attractive” entering 2020, based on “known” upside factors, rather than “unknowns” that might or might not have downside implications.
“Knowns are capacity expansion and cheap valuation,” stated the Thursday report from banking group Morgan Stanley, referring to the advent of new Macau gaming venues in 2020-2021 and the current valuation of Macau gaming stocks.
On the other hand, market consensus was “focused on unknowns – VIP recovery, infrastructure improvement sustaining mass growth and licence decision – all of which may also have bottomed,” suggested analysts Praveen Choudhary, Gareth Leung and Thomas Allen. They were referring latterly to the expected retender process for Macau gaming rights to be occasioned by the expiry in 2022 of the existing rights of Macau’s six incumbent operators.
“Stocks tend to outperform ahead of openings of mega casinos,” the Morgan Stanley team further noted.
The brokerage wrote in its report that when the Macau market saw capacity expansion in second-half 2016 – via the launch of Wynn Palace from Wynn Macau Ltd, and the Parisian Macao from Sands China Ltd; and in first-half 2018 – via MGM Cotai from MGM China Ltd; and Morpheus, a hotel tower at City of Dreams, the Cotai flagship of Melco Resorts and Entertainment Ltd – “stocks outperformed six months before opening in each case.”
Referring first to SJM Holdings Ltd’s anticipated Cotai resort, and second to an extension to Galaxy Entertainment Group Ltd’s Cotai flagship Galaxy Macau, the analysts stated: “We see SJM’s planned opening of Grand Lisboa Palace (2,000 rooms in first-quarter 2021) and Galaxy’s planned opening of Phase 3 (1,500 rooms in first-half 2021) as catalysts for these two stocks to outperform some time in 2020.”
In August Galaxy Entertainment had mentioned a “late 2020″ launch date for a first portion of phase 3 of Galaxy Macau. The construction budget for Galaxy Macau phase 3 and phase 4 was in the range of HKD45 billion (US$5.8 billion) to HKD50 billion, it was said at the time in commentary from brokerage Sanford C. Bernstein Ltd.
SJM Holdings’ most recent commentary on Grand Lisboa Palace – its HKD39-billion entry to the Cotai market – is that the resort would launch in “second-half 2020”, but that timetable has been queried by a number of investment analysts.
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"The most worrying [thing] is whether [mainland] China will again tighten the issuance of travel visas [for visits to Macau]"
Luiz Lam Kai Kuong
Macau junket investor