Bets off for Macau gaming stocks as VIPs feel trade war crunch

[HONG KONG] Even with the old adage never bet against the house, the odds are beginning to look a bit stacked against Macau's gaming stocks.

It's been a roller-coaster year so far for the industry group. The UBS Macau Gaming Basket, which tracks Hong Kong-listed casino operators including Galaxy Entertainment Group Ltd and Sands China Ltd, is hanging on to a 15 per cent gain after massive price swings in recent months including a 19 per cent slump in May. A slide in gaming revenue has hit the region despite record foot traffic.

China's high rollers, a key source of revenue for Macau, are feeling the pinch as their businesses suffer from the ongoing US-China trade war, according to feedback that Las Vegas Sands Corp has received from its wealthiest gamblers. The firm's second-quarter results for Macau this week fell short of analyst estimates, sending shares lower. SJM Holdings Ltd also tumbled as much as 5.4 per cent on Friday after the casino operator sought a loan waiver to extend completion and opening dates for its new resort on the Cotai Strip.

"I won't expect much recovery this year but I might see more meaningful recovery in the first half of next year," said Angela Han Lee, equity research analyst with China Renaissance Securities HK in an interview on Bloomberg TV. "We are seeing more concerns than upside here."

While the Hong Kong-Zhuhai-Macau bridge is helping to drive foot traffic to Macau, which saw monthly visitor arrivals hit a record in December after it opened, "all this traffic is kind of low-quality traffic" not spending enough to make up the difference, she said. "The slowdown in the Chinese economy was the major reason why high rollers got hammered. The mass market is kind of supporting but it cannot support that much."

Macau also faces increasing competition from other regions such as the Philippines as developers build new casino centres including online gambling hubs. Gambling revenue growth for the Philippines has outpaced both Macau and Singapore and should hit its 8.5 per cent growth target in 2019, according to Margaret Huang, Bloomberg Intelligence analyst, in a July 2 report.

BLOOMBERG