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GALAXY ENTERTAINMENT GROUP LIMITED

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Billions blown as Macau casino investors fold amid gambling review

09/15/2021 | 12:03pm EDT
People wearing masks walk in front of Casino Lisboa, before its temporary closing, following the coronavirus outbreak in Macau

HONG KONG (Reuters) - Shares of Macau casino operators on Wednesday shed as much as a third of their value, losing about $18 billion, as the government kicked off a regulatory overhaul that could see its officials supervising companies in the world's largest gambling hub.

With Macau's lucrative casino licences up for rebidding next year, the plan spooked a Hong Kong market already deep in the red after Beijing's regulatory crackdown on sectors from technology to education and property that sliced hundreds of billions of dollars off asset values https://www.reuters.com/world/china/china-crackdown-wipes-hundreds-billions-off-top-companies-values-2021-09-13.

Wynn Macau led the plunge, falling as much as 34% to a record low, followed by a 28% tumble for Sands China. Peers MGM China, Galaxy Entertainment, SJM and Melco Entertainment all fell heavily, taking the drop to HK$143 billion ($18 billion).

U.S. casino companies also fell for the second straight day, losing as much as $4 billion in market capitalization on Wednesday, with Las Vegas Sands Corp slumping to more than a year low, Wynn Resorts Ltd and MGM Resorts International, dropping 8% and 5%, respectively.

The slump came after Lei Wai Nong, Macau's secretary for economy and finance, gave notice on Tuesday of a 45-day consultation period on the gambling industry to begin from the following day, pointing to deficiencies in industry supervision https://www.reuters.com/world/asia-pacific/macau-beefs-up-casino-rules-more-than-doubles-number-gaming-investigators-2021-06-21.

Beijing, increasingly wary of Macau's acute reliance on gambling, has not yet said how the licence rebidding process will be judged.

"Margins will be crushed at the gambling capital of the world and that will drag down all the big casinos," said Edward Moya, senior market analyst at OANDA in New York.

Some Hong Kong stock analysts wasted little time in downgrading their view of near-term prospects for casino operators in the Chinese special administrative region, who must all rebid for licences when current permits expire in June 2022.

J.P. Morgan is downgrading to neutral or underweight all Macau gaming names from overweight, because of the tougher scrutiny on capital management and daily operations ahead of licence renewals, said analyst D.S. Kim.

"We admit it's only a 'directional' signal, while the level of actual regulation or execution still remains a moot point," he said, adding the news would have already put doubt in investors' minds.

Brokerage CFRA downgraded Wynn Resorts to "Strong Sell" from "Buy", citing heightened regulatory risks and said the review was a major overhang for the company as well as other operators.

TIGHTER REGULATION

At a news briefing on Tuesday, Lei detailed nine areas for the consultation, such as the number of licenses, better regulation and employee welfare, as well as having government representatives to supervise daily casino operations.

The government also plans to increase voting shares in gaming concessionaires for permanent residents of Macau, as well as more rules on transfer and distribution of profits to shareholders.

Discussions over the future of Macau's casino licences come amid rocky U.S.-China relations, leaving some investors fearing an edge for domestic players over U.S.-based casino operators.

The government has not singled out any U.S. players, but companies have moved to beef up the presence of Chinese or local executives as they position themselves more as Macau operators than foreign one.

Before licence expiry, operators have tried to strengthen corporate responsibility and diversify into non-gaming offerings to placate Beijing, which fears over-reliance on gambling.

Macau has boosted scrutiny of casinos in recent years, clamping down on illicit capital flows from mainland China and targeting underground lending and illegal cash transfers.

Beijing has also stepped up a war on cross-border flows of funds for gambling, hitting the funding of Macau's junket operators and their VIP customers.

In June, Macau more than doubled the number of gaming inspectors and restructured departments to boost supervision.

George Choi, a Citigroup analyst in Hong Kong, said while the public consultation document gave few details, the suggested changes benefit long-term sustainable growth, with "positive implications on the six casino operators".

However, he cautioned, "We will not be surprised if the market focuses only on the potentially negative implications, given the weak investor sentiment."

The consultation comes as Macau has struggled with a dearth of travellers because of coronavirus curbs since the start of 2020. While gambling revenues have picked up in recent months, they remain less than half of 2019 monthly figures.

($1=7.7785 Hong Kong dollars)

(Additional reporting by Donny Kwok, Shreyasee Raj, Kannaki Deka and Shreyashi Sanyal; Editing by Anne Marie Roantree, Clarence Fernandez and Arun Koyyur)

By Farah Master and Donny Kwok


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
GALAXY ENTERTAINMENT GROUP LIMITED 3.47% 41.75 End-of-day quote.-30.71%
MELCO INTERNATIONAL DEVELOPMENT LIMITED 4.47% 9.81 End-of-day quote.-34.95%
MGM CHINA HOLDINGS LIMITED 7.14% 5.85 End-of-day quote.-56.08%
SANDS CHINA LTD. 3.98% 15.68 End-of-day quote.-53.95%
SJM HOLDINGS LIMITED 2.42% 5.5 End-of-day quote.-36.56%
WYNN MACAU, LIMITED 5.42% 6.22 End-of-day quote.-52.23%
WYNN RESORTS, LIMITED 3.05% 81.28 Delayed Quote.-27.23%
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Financials
Sales 2021 22 775 M 2 925 M 2 925 M
Net income 2021 1 520 M 195 M 195 M
Net cash 2021 27 881 M 3 581 M 3 581 M
P/E ratio 2021 116x
Yield 2021 0,15%
Capitalization 182 B 23 323 M 23 329 M
EV / Sales 2021 6,75x
EV / Sales 2022 3,54x
Nbr of Employees 18 000
Free-Float 49,3%
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Number of Analysts 18
Last Close Price 41,75 HKD
Average target price 60,54 HKD
Spread / Average Target 45,0%
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Managers and Directors
Robert Charles Drake Group Chief Financial Officer
Che Woo Lui Chairman
James Houghton Director-Information Systems & Technology
Wai Ling Lui Group Director-Human Resources & Administration
James Ross Ancell Independent Non-Executive Director
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