Hong Kong-listed Macau casino stocks, representing five out of Macau’s six licensed operators, have underperformed the benchmark Hang Seng Index by an average of 2 percentage points so far in the second quarter, said a Tuesday memo from Morgan Stanley Asia Ltd.
That reflected “normal seasonality, slower Southbound buying, and stagnating earnings revision estimates,” wrote analysts Praveen Choudhary and Jeremy An, referring secondly to investment from mainland China into the Hong Kong share market via the Shanghai-Hong Kong Stock Connect mechanism, which was launched in 2014.
“The underperformance was influenced by news of UnionPay point-of-sale terminal removal and potential World Cup disruption,” added the analysts. They were referring first to the reported removal earlier this month of China Union Pay Co Ltd payment terminals from some retail premises in some Macau casinos; and second the 2018 FIFA World Cup soccer tournament being held in Russia. A reduction in Macau casino betting volume is said typically to coincide with major soccer tournaments.
The pace of year-on-year growth in June for Macau casino gross gaming revenue (GGR) is likely to accelerate to the sort of levels seen in March and April, after the significant slowing witnessed in May, said several brokerages in notes respectively issued on Monday. Morgan Stanley expects a year-on-year GGR gain of 19 percent for the second quarter.
“The good news is that these stocks tend to outperform in the second half in most years, except when exogenous factors drive severe downturns, as in 2014-15,” noted Messrs Choudhary and An, referring to an anti-corruption campaign in mainland China that a number of analysts said led to a downturn period in VIP gambling in Macau.
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”Any reduction in [Macau gaming] tax would be positive for future profits and cash flows, all else equal”
DS Kim, Amanda Cheng and Livy Lyu
Analysts at brokerage JP Morgan Securities (Asia Pacific)