Photographer: Billy H.C. Kwok/Bloomberg

Macau Casinos Posts Rare Rally on Easing Slump, Travel Rules

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It’s been a while since investors had reasons to buy Macau casino stocks.

A surprise move by the Macau government to ease China’s traveling rules and the smaller-than-expected slump in June casino revenue have given hope that the industry might finally be due for a recovery. Casino stocks surged by a degree not seen in more than three years.

Four out of five Hong Kong-listed casino stock jumped by the most since October 2011, helping the Bloomberg Intelligence Macau Gaming index claw back a sliver of its 58 percent dive from its January 2014 peak. MGM China Holdings Ltd. closed up 16 percent while Wynn Macau Ltd., Galaxy Entertainment Group Ltd. and Sands China Ltd. gained between 12 and 14 percent. The benchmark Hang Seng Index was up 0.1 percent.

The loosening of travel restrictions “marks the first supportive policy since a year ago,” wrote Karen Tang, an analyst at Deutsche Bank AG. While she expects the impact will be small, “we note the change in policy tone as important.” She raised Galaxy, MGM China, Sands China and Wynn Macau to hold from sell.

The Macau government announced on Tuesday a reversal of the transit visa policy exactly a year after the entry rules were tightened. Starting July 1, mainland China passport holders transiting through Macau are allowed to stay in the city longer and visit more frequently.

The government is expected to issue more supportive policies in the second half for Macau’s economy while keeping gaming revenue regulated, according to Chris Kwai and Haofei Chen, analysts at China International Capital Corp.

Misplaced Optimism

Las Vegas Sands Corp. and Wynn Resorts Ltd., which rely on their Macau units for at least 60 percent of their revenue, rose for two days in New York on the back of the eased visa restrictions. Melco Crown Entertainment’s New York-listed shares ended up 4.2 percent, after surging 9.7 percent on Tuesday.

Gross gaming revenue in Macau fell 36.2 percent to 17.4 billion patacas ($2.2 billion) in June, beating the median estimate of a 38.3 percent drop from six analysts surveyed by Bloomberg. The slump has been easing for four straight months following 13 consecutive months of declines.

Optimism that the market is showing signs of bottoming may be misplaced, according to Morgan Stanley analyst Praveen Choudhary, pointing to disappointments for Macau casinos over the next six to 12 months “that should keep investors at bay.”

These include the risk of VIP revenue declining further as more junket operators shut down, and the impact on casino earnings due to higher labor and construction costs, he wrote in a note on July 1.

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