Macau stock US$4.3bln mkt cap loss on Hainan fears: analyst

Jun 20, 2018 Newsdesk Latest News, Macau, Rest of Asia, Top of the deck  

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A 3.7-percent Tuesday sell-off in Macau casino firm stocks traded in Hong Kong had seen US$4.3 billion lost in market capitalisation, said a note that day from Union Gaming Securities Asia Ltd.

By 2pm on Wednesday Hong Kong time, the five Hong Kong-listed Macau gaming names had staged a recovery in stock value ranging from 1.62 percent in the case of Sands China Ltd, to as much as 6.58 percent in the case of SJM Holdings Ltd, according to Bloomberg data.

The brokerage attributed the Tuesday sell-off to news out of the Chinese holiday island of Hainan – reported by Bloomberg on Tuesday – that some hotel resort investors in the destination were again working to set up small-scale gaming operations whereby wins are paid in tokens that can be redeemed for goods and services either in the resort or locally.

Union Gaming analyst Grant Govertsen wrote: “Up to five hotels in Sanya (Hainan) might soon operate small entertainment rooms whereby real money (very low stakes) is used to play games like baccarat, but any winnings are paid in prizes and resort amenities (similar to pachinko in Japan).”

He added, referring to a facility called “Jesters” that had been previously set up at a property known as Mangrove Tree Resort in Sanya: “This followed the recent publication of a verdict in a four-year-old court case concerning the Mangrove resort that had operated such an entertainment facility that was then closed by the police.”

The brokerage said it believed the court ruling – reportedly allowing prize-based table games – “does not contradict” China’s legal system, because such activity was for “entertainment purposes only and is low stakes”. Within China, casino gambling is only legal in the special administrative region of Macau.

April announcement

The institution noted that in April the Macau casino stocks had seen sold off on news that horse racing might come to Hainan, along with an international-style lottery, amid speculation that ultimately casinos might be on the agenda too.

Mr Govertsen said that – based on a visit to Hainan by the brokerage – the possible reopening of gaming at Mangrove Tree Resort and possible opening of similar gaming-style facilities nearby, represented “no threat to Macau from virtually any point of view”, in terms of “quality, scale, amenities, culture, experience, luxury, customer service, and most importantly, true gambling”.

He suggested: “While small stakes ‘wagering’ on a small number of tables might be tolerated for a period of time in order to keep some of the resorts in the black, any small step the Hainan operators take to offer legitimate gambling will be met with an immediate and harsh reaction from the authorities.”

The analyst further commented, referring to Macau’s six casino licensees: “As we noted in April, even if true casino gambling was legalised in Hainan the risk to Macau’s ‘big six’ is negligible.”

He added: “This is because there would likely be no measurable impact to mass market GGR [gross gaming revenue] as mass is convenience based and Hainan is simply not convenient for virtually all of Macau’s mass customers. The primary risk is therefore within the VIP segment, although likely limited to a few hundred basis points of VIP GGR as any expansion would probably be limited to one or two casinos versus Macau’s 40.”

In May, Liu Cigui, Secretary of Hainan Provincial Committee of the Communist Party of China, was quoted saying that while growth of tourism and technology business in Hainan was welcomed, the territory should steer clear of “prostitution, gaming and drug dealing”.

An April note from brokerage Sanford C. Bernstein Ltd suggested that Hainan’s development of non-gaming tourism might be a threat to Hengqin Island next door to Macau, which has been touted as a non-gaming holiday destination to complement Macau’s gambling-focused tourism.

(Updated 2.30pm June 20)

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