Galaxy, MGM Lead Casino Gains as Macau Worst Appears Over
Galaxy Entertainment Group Ltd. (27) rose to a two-month high in Hong Kong trading, leading gains by other casino operators as Macau’s gambling revenue is expected to rebound from its first drop in five years.
Galaxy increased 4.8 percent to close at HK$65, its highest level since April 28. MGM China Holdings Ltd. advanced 3.5 percent, while Sands China Ltd. (1928) was up 3 percent. The city’s Hang Seng benchmark Index rose 1.6 percent.
Total gross gaming revenue in Macau dropped 3.7 percent to 27 billion patacas ($3.4 billion) last month, the first decline since June 2009 when it fell 17 percent. The figure was better than the median estimate of a 4 percent decline from nine analysts surveyed by Bloomberg News.
Impact from the World Cup football tournament in Brazil “is severe but only temporary,” according to Deutsche Bank AG analyst Karen Tang who said the “worst appears over.” During the last World Cup in 2010, gaming revenue fell 20 percent before recovering by the same scale, she wrote in a note.
Casinos in Macau, the only place in China where they’re legal, rely on high rollers brought in by junket operators for more than 60 percent of revenue. Growth in the VIP segment has slowed as gamblers cut spending amid a cooling Chinese economy and a nationwide crackdown on corruption in China.
Wynn Macau Ltd. gained 2 percent in Hong Kong trading today, while Melco Crown Entertainment Ltd. and SJM Holdings Ltd. rose 1.4 percent and 3.5 percent.
Gaming revenue will rebound in July to 30 billion patacas, 2 percent higher than a year earlier, Billy Ng, an analyst at Bank of America Merrill Lynch, wrote in a report yesterday. Macau casino stocks have stabilized in June as investors priced in negative news such as the slowdown in VIP junkets and restrictions on money flows, he wrote.
“With more clarity on these issues, the sentiment for the sector is gradually recovering,” Ng wrote, adding that while the VIP segment is slowing, outlook for the sector remains positive as growth in the mass market remains robust.
China’s President Xi Jinping has waged a campaign against corruption since taking over as Communist Party chief in 2012 and his clampdown on lavish spending have hurt luxury sales from Chow Tai Fook Jewellery Group Ltd. to Gucci bags. The country’s economy expanded 7.4 percent in the first three months of this year, the weakest pace since 2012.
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