GGRAsia – Macau casino shares rout puzzles brokerage as day 2 ends

Macau casino shares rout puzzles brokerage as day 2 ends

May 04, 2023 Newsdesk Latest News, Macau, Top of the deck

There have been two consecutive days of decline among most Macau casino-operator stocks, with day one of the rout having left a brokerage puzzled as to possible causes. The market has recently been reporting three-year highs in terms of data such as average daily rate of casino gross gaming revenue (GGR), with market expectations that growth would persist.

“We attribute this correction to market flows and technical selling pressure,” wrote analyst DS Kim, of JP Morgan Securities (Asia Pacific) Ltd, in a Wednesday memo.

“We really couldn’t find any fundamental reasons or news behind today’s rout,” he added, referring to the first day of the retreat.

At Hong Kong market opening on Wednesday, MGM China Holdings Ltd had seen its stock price decline by up to 11 percent.

By Wednesday close, MGM China was down by 8.8 percent for the day. Sands China Ltd had fallen 3.1 percent, and Wynn Macau Ltd had been down 2.9 percent. Melco International Development Ltd – controller of Macau operator Melco Resorts and Entertainment Ltd – had dropped by 5.9 percent. Galaxy Entertainment Group Ltd had declined by 1.9 percent and SJM Holdings Ltd had been down 3.9 percent.

Significant decline continued for most of the Hong Kong-traded Macau names throughout Thursday: MGM China was down by 3.2 percent for the full day. Wynn Macau Ltd dropped 3.9 percent, and Melco International Development was down 4.0 percent. Galaxy Entertainment dipped by 0.5 percent, and SJM Holdings slipped by 2.6 percent. The Hong Kong market’s underlying Hang Seng Index gained 1.26 percent on Thursday.

In his Wednesday commentary, JP Morgan’s Mr Kim noted there were no signs of Macau operators running into “liquidity pressure”, and in his view it was “highly unlikely” any were seeking a placement of shares that might affect investor sentiment.

Referring to the Macau market’s peformance during the April 29 to May 3 inclusive, mainland China holiday period around Labour Day, Mr Kim stated: “We estimate mass demand has likely recovered to over 90 percent of pre-Covid levels during the May Day holiday – even if we compare only the first four days of this year’s holiday, versus the full holiday in 2019 – much higher than a circa 65-percent recovery in the first quarter.”

House-managed or “direct” VIP gaming business was estimated by the brokerage to have recovered to “150 to 200 percent” of pre-Covid levels for some of Macau gaming operators during the Labour Day holiday period, thanks to “junket player conversion”.

Mr Kim added: “This should drive VIP GGR to recover to circa 30 percent despite the demise of junkets, which implies total GGR to comfortably recover to about 65 percent to 70 percent [pre-Covid] levels for the holiday, in our view.”

The brokerage said it continued to forecast full recovery in mass-market gambling demand by 2024.