Casino Stocks Rocked By Unexpected Macau Announcement

Casino stocks are trading lower Tuesday morning following disappointing results from Macau. This reading comes just weeks after news spread of a government crackdown in the region.

Gambling revenues rose 9.3 percent in May, while analysts were expecting growth between 13 and 15 percent; revenue for May was $4.05 billion.

The slowdown in growth may be related to increased regulation. At the beginning of May, the Chinese government seized UnionPay cards that were illegally bringing money into the city. Chinese citizens are limited on the amount of money they can bring into Macau (which has its own currency), however UnionPay cards acted as a workaround for this regulation. Casinos feared that this change would affect their profitability.

Related Link: Is Macau Casino Growth A Sure Thing?

Praveen Choudhary of Morgan Stanley commented on how the premium mass segment could be affected by this regulation.

“Since premium mass contributes more than 30 percent of EBITDA for the market," said Choudhary, "we think that could have a negative impact on profit and stock prices for stocks under our coverage... Mass table yield, measured in revenue/table/day, could drop from $25,000 for premium mass to $9,000 at grind mass tables, a 64 percent decline.”

If the regulation on UnionPay cards is in fact the cause of decline, casino stocks will likely be in for more of a slide, as investors adjust their models.

Macau brings in a lot of money for international casinos -- two months of the region’s revenue is greater than Las Vegas’ entire year.

Las Vegas Sands CEO Sheldon Adelson commented that the people of Macau, “have been wanting to challenge luck for 3,000 years and nothing, through thick or thin, tall or short, slim or fat, nothing has stopped them, and I don't think anything will.”

Las Vegas Sands LVS is down 2.11 percent to $75.80.

MGM MGM is down 1.76 percent to $26.13.

Wynn WYNN is down 2.05 percent to $218.02.

What do you think?