Macau Casino Stocks May Drop Whether ATM Cap Is True or Not

  • CMB strategist says casino shares had climbed too high
  • Shares plunged in Hong Kong on report of cash withdrawal curbs

New Threat to Macau Casino Recovery

For Daniel So, the reason behind the sudden selloff in Macau casino shares isn’t all that important.

Valuations are what matter to the CMB International Securities Ltd. strategist, and those are telling him the rout on Friday has further to go. A Bloomberg gauge of casino shares reached the most expensive level versus Hong Kong’s Hang Seng Index in seven years this week, and it still trades at a premium of more than 130 percent.

So is taking a bigger-picture view on the stocks’ prospects after conflicting reports on China’s efforts to curb capital outflows via the gambling hub. Casino operators plunged at the open of Hong Kong trading after the South China Morning Post said China would cut daily UnionPay ATM withdrawal limits in Macau. Shares pared losses after analysts questioned the veracity of the report, and Macau later clarified that it introduced a limit on each card transaction instead of reducing the daily cap.

Macau casinos “have risen by so much and over-reflected the recovery in the industry,” So said in an interview from Hong Kong. “It’s just a matter of time before the share prices have a significant correction.”

Friday’s rout in Hong Kong-listed casino shares followed an 84 percent gain in the BI Macau China Gaming Market Competitive Peers Index from this year’s low on Jan. 21. While gross gaming revenue in the former Portuguese colony rose for the fourth straight month in November, So says stock investors have been overestimating the strength of the industry’s rebound.

The BI Macau index is valued at 27 times estimated earnings for the next 12 months, versus 11 times for the Hang Seng index, according to data compiled by Bloomberg. The Macau gauge’s 134 percent premium compares with a five-year average of 64 percent.

“The recovery will be quite weak,” So said. “It doesn’t justify the strong surge in stock prices.”

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