A gaming analyst’s cautious view toward the recovery of Macau’s gaming market following eight straight months of declining revenues sent shares of the three Las Vegas-based casino operators with holdings in Macau tumbling on Wednesday.
Roth Capital Partners gaming analyst David Bain isn’t convinced the upcoming Golden Week Holiday will help the market’s recovery following the massive coronavirus pandemic disruptions that began in January and canceled the lucrative Chinese New Year celebrations. Macau has seen gaming revenues fall more than 90% in each of the last five months, as COVID-19 travel restrictions from different Chinese provinces sunk visitation.
Travel constraints, however, have been lifted in time for Golden Week.
“While investors have stated a belief for a fast recovery to 2019 levels starting with Golden Week, we are less certain,” Bain wrote in four separate reports covering U.S. operators Wynn Resorts, Las Vegas Sands, and MGM Resorts International and the Hong Kong-based Melco Resorts, whose shares are traded in the Nasdaq.
Bain was most critical of MGM Resorts, which derives roughly 21% of its quarterly revenues from its two Macau resorts, the smallest percentage compared to its U.S. competition. Las Vegas Sands collects roughly 65% of its annual revenues from Macau, while Wynn collects close to 70%.
Bain held MGM to a neutral rating, saying the company’s Las Vegas resorts are basically relying on California leisure customer traffic due to reduced airline capacity and a lack of convention business, with forward-looking group meetings “essentially non-existent” over the last part of this year and into the beginning of 2021.
Bain called the company’s current Las Vegas business model “unappealing, in our view.” He added that MGM’s high-end regional portfolio “is unable to capture similar efficiencies (compared) to hyper-local casinos.”
As for Macau, gaming revenues are down 81.6% to $4.55 billion for the first eight months of 2020. A year ago, Macau casinos had produced almost $25 billion through August. In all of 2019, Macau casinos produced $36.6 billion in gaming revenues.
As for Las Vegas Sands and Wynn, Bain said the Macau environment was “not normal.” Overhanging the two casino operators is the June 2022 expiration of the companies’ Macau gaming concessions, the government-issued gaming licenses. The process for relicensing is still unclear, and some analysts have hoped the procedure would be postponed until 2023 due to the COVID-19 disruptions this year.
Notwithstanding that situation, Bain told investors Las Vegas Sands likely wouldn’t see its 2019 visitation totals return until late 2021, “leaving (its) massive gaming halls less filled and its mass-market share deflated.” Bain said the higher-end business would “likely moderate market share of facilities (that are) structured more for volume.”
Las Vegas Sands has the highest concentration of resorts in Macau, including the Venetian complex, Sands Macau, and the Parisian. The company is also spending $2.2 billion to convert Sands Cotai Central into the Londoner, which is expected to be completed next year. Bain said the company could be hurt by the opening in December of the Grand Lisboa.
“Macau is not supply driven, at the moment,” Bain said.
Wynn Resorts, Bain said, is too reliant on high-end business.
“We believe certain operators are structurally better positioned to benefit from the more visible, longer-term, dynamic Macau gaming market than Wynn,” Bain said. “While structural elements for visitation improvements are advancing, we believe a VIP-led recovery may be less broad-based than many anticipate, and carry specific risks.”
Shares of Las Vegas Sands fell $2.18 or 4.2% on the New York Stock Exchange to close at $49.67 on Wednesday. MGM Resorts closed at $23.01 on New York Stock Exchange, down 73 cents or 3.07%.
Meanwhile, Wynn closed at $79.66 on the Nasdaq, down $2.62 or 3.18%. Melco closed at $18.65 on the Nasdaq, a decline of $1.01 or 5.14%.
Bain said exposure to the Macau market offers “significant upside, and it remains one of the most compelling potential consumer stories over the next several years.” Melco, he believes, “offers the strongest vehicle to participate in potential Macau growth while mitigating certain peer-levered risks.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
