A continued “robust” approach to environmental, social, and governance (ESG) issues by Macau casino operators could help boost revenue, cut costs, and reduce risk of hazards such as litigation, says a report by Daiwa Capital Markets Hong Kong Ltd.
The review by analysts Andrew Chung and Terry Ng approached the ESG topic on the basis that all six had been making improvements in that area, that would potentially work in their favour in future.
“We believe strongly that a robust ESG profile is key to incremental revenue opportunities, sustainable cost savings and intangible-risk mitigation,” stated the Daiwa analysts in the paper issued on Thursday.
The analysts also said they believed “ESG advances will gather pace” in tandem with the “core structural story for Macau gaming EBITDA [earnings before interest, taxation, depreciation and amortisation] growth, especially on margin improvement.”
The paper referred to the Macau government’s stated aim of creating a new regulatory framework for the city’s casino industry prior to a new public tender for gaming rights in June 2022.
The brokerage said: “If the… gaming law amendments, junket system overhaul and concession reissuance ‘resets’ the industry to a clean slate, we may see new business opportunities arise, material cost savings (i.e., customer-acquisition costs and bad debt reversal), and less costly litigation, like the recent Wynn-Dore case.”
The latter related to an issue particular to Wynn Macau Ltd and the Dore junket brand, concerning demarcation of responsibilities over the holding of cash deposits for VIP gaming. The matter went all the way the city’s Court of Final Appeal.
Daiwa said in its Thursday paper, referring to an MSCI Inc index: “Investors will be curious to learn that MSCI has kept on upgrading the ESG ratings of Macau gaming sector names.”
Mr Chung and Mr Ng added: “In fact, Sands China [Ltd] and Melco [Resorts and Entertainment Ltd] are now rated AA” for ESG, which was “higher than the ratings of all the operators in Las Vegas (e.g., Las Vegas Sands [Corp], MGM Resorts [International]).”
The Daiwa team further stated, with reference to China’s leader, President Xi Jinping: “We believe the sector has moved on to a much better risk and ESG profile due to President Xi’s regulatory and diversification efforts over the past seven years.”
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