Casino Analyst On Arrests Of Macau Gaming Executives: 'Difficult For Investors At The Moment'

Macau casino stocks took a huge hit on Friday following the arrest of 10 casino junket officials.

On Monday, Bank of America analyst Shaun Kelley said the arrests are just the latest example of Macau being a high-risk speculative bet at this point.

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“This development, in our view, is more of a crackdown/intervention risk than the concession process from back in September, but is yet another example of the 3 C’s (COVID, crackdown and concession) risks that make Macau difficult for investors at the moment,” Kelley said.

Junkets Targeted: Suncity Group Chairman Alvin Chau was the highest profile arrest last week. Suncity is a major Macau junket that hosts VIP gamblers from mainland China. Suncity is believed to control roughly 40% of the Macau VIP gaming market.

Kelley said the latest arrests are a devastating blow to the VIP gaming market in Macau. Prior to COVID-19, VIP gaming represented 46% of Macau’s total gross gaming revenue, Kelley said. As of the third quarter, that percentage had dropped to 34%.

Stocks Impacted: Of the three U.S. companies with Macau gaming licenses, Wynn Resorts, Limited WYNN had the highest exposure to the VIP segment at 49% of total Macau revenue. VIP revenue accounted for just 30% of Las Vegas Sands Corp. LVS Macau GGR and 36% of MGM Resorts International MGM Macau GGR.

Overall, Kelley said the financial risks to a crackdown on Macau junkets are “manageable” for the U.S. operators, but the arrests will serve as the latest blow to Macau investor sentiment, which could negatively impact stock valuations.

For now, Bank of America has a Neutral rating on all three stocks with a $64 price target for Sands, a $55 target for MGM and a $105 target for Wynn.

Benzinga’s Take: Gaming investors looking for less risk in the space should take a closer look at U.S. stocks that have no exposure to Macau.

On Monday, Kelley also named several of his top gaming stock picks heading into 2022, including Boyd Gaming Corporation BYD, Churchill Downs, Inc. CHDN and Caesars Entertainment Inc CZR.