Casino stocks Las Vegas Sands Corp. LVS and Wynn Resorts, Limited WYNN have taken huge hits in the past month, and much of the sell-off has to do with uncertainty surrounding the renewal of their Macau casino licenses and an ongoing gaming law review that could increase regulatory oversight of Macau properties.
License Renewals: The changes being discussed in Macau include shortening the duration of Macau concessions, or licenses. All six of Macau’s current concessions are set to expire in June 2022.
In addition, the local government is discussing increasing the requirement for local ownership of casinos above its current 10% minimum and placing limits on shareholder returns. There may also be more direct government involvement in the casinos and more scrutiny of criminal activity and casino employees.
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Bank of America analyst Billy Ng recently hosted a panel discussion with industry insiders to talk about the Macau license renewal process. Ben Lee, managing partner of Igamix Management and Consulting, said local Macau operators aren’t surprised by the proposed changes. He said local officials have been discussing these types of changes for years now.
Lee said he believes Macau casinos will be forced to have government representation on their boards. While that representation likely won’t have a major impact on casinos' daily operations, Lee says it may negatively impact their marketing in mainland China.
David Green, CEO of Newpage Consulting, said there is still a chance the government will opt to extend the current gaming licenses in Macau by a couple of years, as long as that decision comes before a Dec. 26, 2021 deadline.
Lee said foreign brands, such as Wynn and Las Vegas Sands, may be disadvantaged in Macau if they are unable to find a local partnership to help them meet a 10% local ownership requirement.
Both experts agreed that local gaming tax rates will likely remain unchanged.
Visitation Numbers: While investors agonize over the license renewals and gaming law changes, local COVID-19 outbreaks are also devastating the Macau gaming market. Macau visitations in August were up 80.2% year-over-year but down 48% compared to July.
On Thursday, Ng said much of the Macau risk is already priced into Las Vegas Sands and Wynn shares after their steep sell-offs in recent weeks.
“We view the correction as excessive and the sector now is trading at 8.8x 2022E EV/EBITDA, which is 2SD lower than its long term average,” Ng said.
Bank of America has a Neutral rating and $55 price target for Las Vegas Sands and a Neutral rating and $105 price target for Wynn.
Benzinga’s Take: Earlier this month, Wells Fargo recommended gaming investors avoid Macau for now in favor of casino stocks with exposure to Las Vegas and the U.S. online sports betting and iGaming markets. Wells Fargo named MGM Resorts International MGM its top overall gambling stock pick.
Image by Jimmy Lau from Pixabay
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