Macau casino stocks jump most since 2015 as gaming bill eases concerns

[HONG KONG] Macau casino stocks surged after the city announced gentler-than-expected changes to its gaming law, easing investor concerns about outsized government control over the world's largest gambling hub.

A Bloomberg Intelligence gauge of casino shares jumped as much as 12 per cent on Monday (Jan 17), the most in more than 6 years, with Wynn Macau, Sands China and Galaxy Entertainment Group each posting double-digit gains.

It follows a similar climb in US-listed stocks on Friday after Macau said it plans to give a maximum of 6 licences, paving the way for all current operators to seek to renew permits that are due to expire by June.

The proposed legislation will give licences for 10 years, with the possibility to extend by another 3 - down from the current 20-year period - and outlined plans to increase the proportion of local ownership in casino firms from the current 10-15 per cent.

Officials also want to cap the public float of casinos' licence-holding subsidiaries, which may have limited impact on their listed arms, and keep gaming-related taxes at about 40 per cent for now.

The new bill eases investors' concerns about a harsher revamp that would increase government control over the sector, with the industry already reeling from a dearth of tourists due to Covid-induced travel restrictions and Beijing's crackdown on high rolling gamblers to curb capital flight.

Macau authorities backtracked on some unpopular proposals, such as sending government representatives to directly supervise operators and imposing constraints on dividend distribution.

The revisions should "remove most investors' key concerns", including around dividends, government oversight, minimum shareholding by a Macau permanent resident and the gaming tax, Citigroup analysts including George Choi wrote in a Jan 17 note. There may be a significant revaluation of the sector after the latest proposal, they added.

RECOVERY UNCERTAINTY

Authorities have submitted the bill to the local legislature, which is expected to approve it given its track record of green lighting most government proposals. Officials however have said they may consider extending the current licences for a while if the legislation can't be completed in time.

Still, the gaming sector's near-term path to recovery remains uncertain due to China's zero tolerance for coronavirus cases, Credit Suisse Group analysts including Kenneth Fong wrote in a note.

Macau's US$10.8 billion in gaming revenue last year was up 44 per cent from 2020 but still down 70 per cent from pre-pandemic levels. China closed its border with the city between September and October to wall off the coronavirus, while the hub remains shut to the rest of the world.

The industry's high-roller business also remains under heightened scrutiny. Macau's roughly US$3 billion VIP revenue was hit after authorities arrested Alvin Chau, chief executive officer of Suncity Group in November.

And over the longer term, China has a larger plan to transform the Macau's economy to reduce its reliance on gambling and recast it as a global leisure and tourism hub.

BLOOMBERG