Shanghai-HK Stock Connect affecting Macau names: analysts
The Shanghai-Hong Kong Stock Connect appears – on occasions – to be supporting the share prices of Macau gaming names, say several investment analysts. That is despite the current gloom over political and macroeconomic developments in mainland China related to Macau’s casino industry.
The system, which launched in November, enables investors in Hong Kong and the mainland to trade a specified range of listed stocks in each other’s market through their respective local securities companies.
Overall trading volumes for approved stocks have increased rapidly since in March the mainland China government announced it would allow domestic mutual funds to buy and sell shares between the two exchanges.
“The last few trading days in Hong Kong have demonstrated what can sometimes be positive volatility associated with a heavy retail presence (not to mention what could be positive implications related to the recent loosening of Hong Kong-Shanghai stock exchange connection rules),” said Union Gaming Research Macau Ltd analysts Grant Govertsen and Felicity Chiang in a note on Friday, referring to the Hong Kong-listed stocks of Macau casino operators.
Kenneth Fong and Isis Wong of Credit Suisse AG said in a note on Monday: “[Macau] Gaming names have rallied over 10 to 15 percent last week on the flow from Hong Kong-Shanghai connect [sic] despite weakening fundamentals.”
Those include, said Credit Suisse, a weakening top line combined with risk to profit margins. The team said that according to its estimates, Macau casinos’ daily revenue fell 17 percent sequentially from MOP734 million (US$91.9 million) in January and February, to MOP611 million in the first week of April.
“On top of weak revenue, operators also face mounting costs pressure. Concerned that they may not get sufficient construction labourers and tables for the new [Cotai] projects, operators would not only have to avoid laying off excess workers but have to raise wages. What’s more, junket consolidation and premium mass competition may further erode margin,” said the Credit Suisse team.
The bank added it was cutting its 2015 gross gaming revenue (GGR) forecast for Macau from -21 percent for VIP and +10 percent for the mass market, to -23 percent for VIP and +9 percent for the mass segments.
Cameron McKnight and his colleagues Rich Cummings and Tiffany Lee of Wells Fargo Securities LLC in New York, said in a note on Monday that based on checks through to April 13, they estimated daily GGR was tracking in “the low MOP600 million range”, assuming normal hold rates for the casinos.
“Our checks suggest revenues may remain soft until the May holidays,” added Wells Fargo, saying April Macau gaming revenue growth was tracking at the “low end” of the institution’s -37 percent to -40 percent estimate.
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