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Macau Turnaround Could Have Casino Stocks On Track

23 June 2015 in Trading Ideas

Some long-hoped-for stabilization in the world’s largest gaming hub has been good news for those investing in casino stocks.

As Barron’s noted recently, analysts at Credit Suisse finally found some “green shoots” in the May gaming data from the Chinese island of Macau – specifically, that VIP gaming revenue rose 3%, VIP “rolling” rose 7%, and most importantly, mass gaming was up 9%.1

“Mass revenue was quite decent, even after considering [the] labour day holiday in May and an extra calendar day,” wrote the analysts, who have been very cautious towards the sector, according to Barron’s.

In addition, Credit Suisse said that mainland tourist arrivals seem to be improving too:
“The pace of mainland visitation number decline has also narrowed in April to -6% (vs. March -13.5% YoY). We highlighted in our earlier piece that Macau was hurt by the slower visitation in Hong Kong. We believe the impact is gradually fading. In fact, recent data shows that the Chinese visitation also improved 7.2% YoY during 1-24 May in Hong Kong. As the mainland Chinese visitation trend between Hong Kong and Macau has strong correlation, we believe a better trend in Hong Kong should bode well for Macau.”

The stocks of several casino operators with significant operations in Macau jumped on the news, which has helped stabilize the sector overall. The Casino Gambling motif is up 0.1% in the past month. In that same time, the S&P 500 is flat.

Over the past year, the motif has decreased 14.5%; the S&P 500 has risen 8.2%.

Holding steady on revenue losses would undoubtedly be reassuring to investors who have had a tough year in this space. As a Forbes.com piece by Trefis analysts recently pointed out, names like Wynn Gaming have fallen as much as 50% in the past year amid the anti-graft measures taken by the Chinese government.2

Moreover, Beijing wants Macau to diversify its economy, which is largely dependent on gambling, Forbes.com said. As a result, gaming revenues have been declining for 12 straight months on the island.

Now, however, Trefis sees the latest data from Macau showing gains across all segments and indicative of early signs of recovery there. The analysts believe that growth in Mainland China visitors and China personal disposable income will spur gaming demand, which in turn will catalyze stocks like Wynn.

Next month’s data will likely have a lot to do with how extended of a rally the sector can sustain.

1Shuli Ren, “Macau Gaming Shows Some Green Shots,” barrons.com, June 4, 2015.

2Trefis Team, “Weekly Casino Notes: Casino Stocks Surge Amid an Uptick In Casino Gaming,” forbes.com, June 8, 2015, http://www.forbes.com/sites/greatspeculations/2015/06/08/weekly-casino-notes-casino-stocks-surge-amid-an-uptick-in-macau-gaming/, (accessed June 22, 2015).