Despite overall investor sentiment remaining negative, Macau’s gaming industry is benefiting from increased domestic tourism, providing a bright spot in China’s generally challenging investment environment.
In both fixed income and equity, Macau gaming companies, especially those with US-based parent companies such as Las Vegas Sands, Wynn Resorts and Studio City, are supported by strong fundamentals that outweigh overall weak market sentiment. The company provides investors with the following:
The US-based Macau gaming company’s bonds, both high-yield and investment grade, currently trade at yields of 7% to 10%. The spread between the US-based parent company’s bonds and the Macau-based affiliate’s bonds traded in Hong Kong widened.
Stocks are also generally undervalued. For example, Wynn Macau’s share price was trading at HK$6.76 (US$86.4) on Tuesday (February 27), following the company’s strong fourth-quarter results and a slight revision to its profit forecast. That was much lower than Morningstar’s valuation of HK$8.8 per share.
“Slightly better-than-expected results helped by higher win rates and strong sales growth in the company’s peninsula properties after an extended renovation closure,” said Jennifer Song, senior equity analyst at Morningstar. ” he said. “Furthermore, there was also a favorable mix shift to higher margin mass games and cost efficiencies, with adjusted EBITDA margin increasing 140 basis points from 2019 levels to 32.6%.”
The case of Macau’s gaming industry is unique in that market sentiment is deteriorating while fundamentals are improving.
The strong fundamentals of Macau’s gaming industry have been confirmed by Fitch Ratings in a report published on February 21, with the rating agency predicting that the growth rate will increase in 2024 based on the recent steady recovery in inbound tourism. expressed optimism that the outlook for the industry will improve. Lunar New Year holiday period.
“We expect the mass market sector to contribute to this positive trend,” said Samuel Hui, director of corporate at Fitch (Hong Kong) Limited. “During the eight-day Lunar New Year holiday, which was one day longer than usual, there was a surge in tourists from mainland China to Macau. This influx comes despite the economic headwinds facing China. This supports expectations for recovery over the rest of the year. Part of this resilience is due to a shift in Chinese consumer preferences towards service-oriented sectors such as domestic tourism and entertainment.”
According to data from the Macau Government Tourism Office, the number of tourists visiting Japan during the first seven days of the Lunar New Year holiday period increased by 2.6% compared to the same period in 2019. During the entire 8-day holiday, the total number of tourists reached 1.4 million. That’s up from 1.2 million visitors in the same period in 2019.
