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Investing In Macau’s Top Casino Stocks: Galaxy Entertainment Group; Sands China; Wynn Macau

It’s time for games again.

China’s recent decision to change course and rapidly open up after stringent Covid lockdowns came as a pleasant surprise for many people.

Unsurprisingly, it has also sparked a strong rally in both Hong Kong and Chinese stock markets. That’s because there’s a possibility that the Chinese economy can get back to some sort of normal.

One of the biggest beneficiaries of the reopening talk has been casino operators in Macau. Mainly, that’s down to the fact that they rely on tourists – mostly from China – to fill their casinos and integrated resorts (IRs).

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They were hit hard when Covid-19 first surfaced and countries closed their borders. But they’ve rallied strongly recently on the reopening in China and on news that the six key players will have their casino operating licenses renewed.

So, with the opening up of China still an ongoing process, here are three big Macau casino stocks (listed in Hong Kong) that investors should be familiar with.

Sands China (HKEX: 1928)

If you’ve been to Macau before then you’ve most likely visited the Venetian Macao, a property owned by Sands China (HKEX: 1928). It’s one of the biggest IR operators in Macau, with other well-known properties such as The Sands Macao, The Londoner Macao, and The Parisian Macao under its umbrella.

Sands China itself is a subsidiary of Las Vegas-based gaming giant Las Vegas Sands Corp (NYSE: LVS).

The Macau casino operator listed its shares on the Hong Kong Stock Exchange in 2009. Like many casino operators in Macau, its shares soared from 2009 to the beginning of 2014. That was when China’s President Xi Jinping instigated a corruption crackdown that saw Macau’s visitation numbers (particularly in the high roller segment) suffer from the fallout. Worse was to come when Covid-19 hit as revenues plunged and Macau closed its borders.

While there was some respite in 2021, the first half of this year saw Sands China’s net revenues down 43.5% year-on-year to US$915 million as ongoing restrictions and lockdowns in Mainland China hit visitor numbers.

Overall, Macau’s casinos saw their revenue drop 56% year-on-year in November to MOP 3 billion (US$374 million). Total gaming revenue for Macau in the first 11 months of 2022 was MOP 38.7 billion, way off the MOP 270 billion generated in the same period in 2019 (pre-pandemic).

With Sands Macau positioned more in the mass market segment, it looks like it will benefit from any widespread reopening of the border between Mainland China and Macau. Since the end of October, Sands China’s share price has nearly doubled from HKD 13.12 (28 October) and is now trading at HKD 25.90 (30 December) in hopes that the casino can take advantage of the reopening of borders and the ending of uncertainty on the renewal of gaming licenses.

Galaxy Entertainment Group (HKEX: 27)

Large Hong Kong-based gaming group Galaxy Entertainment Group Limited (HKEX: 27) was founded by property tycoon Lui Che-woo, owner of K Wah International.

It made a splash in Macau by opening up large IRs on the Cotai strip, including Galaxy Macau, Broadway Macau, and StarWorld Macau.

Unsurprisingly, it has also been hit hard by the lockdowns in China, which have had a devastating impact on its business.

Galaxy’s adjusted EBITDA (a measure commonly used by Macau casinos to measure the overall profitability of their various properties) saw steep falls across the board in its latest Q3 2022 results (see below).

Source: Galaxy Entertainment Group Q3 2022 earnings presentation

While the company’s cash position has fallen over the past year, it still boasts a healthy balance sheet. It has HK$22.5 billion in cash and liquid investments, while having a net cash position of HK$19.3 billion.

The company is continuing construction of its Cotai Phase 4 property, which aims to service a more premium market segment.

While its shares have benefitted from the reopening announcement, Galaxy shares have lagged other casino stocks and are up “only” around 50% since the end of October. That’s mainly down to the fact that Galaxy tends to service more “high rollers”.

This segment has been discouraged by the Chinese government, as it attempts to move Macau to boost other gaming-related subsectors like tourism and meetings, incentives, conferences, and exhibitions (MICE).

Wynn Macau (HKEX: 1128)

Lastly, there’s Wynn Macau Limited (HKEX: 1128), which is an operating subsidiary of the famous Wynn Resorts – founded by Steve Wynn – in Las Vegas.

Wynn Macau went public in Hong Kong in 2009 and was part of the wave of new IR and casino operators that won licenses to operate in the gambling enclave. Floating at just over HK$10 per share, Wynn Macau shares reached a high of just over HK$37 in early 2014 before President Xi’s anti-corruption campaign saw Macau casinos’ share prices crater.

Similar to a lot of the big names, Wynn Macau has arguably suffered even more during the Covid-19 pandemic and subsequent lockdowns.

Wynn Macau’s revenue for Q3 2022 came in at US$115.6 million, down 63% year-on-year from the same period in 2021.

It highlighted the struggles that all Macau casinos have been facing so far in 2022. However, Wynn Macau is well-positioned to benefit from the local government’s shift towards encouraging other forms of non-gaming-related income.

That’s because both Wynn Macau and Sands China have extensive experience to leverage from their respective parents in how they’ve successfully transformed Las Vegas into a destination that’s not only tied to gaming revenues.

Indeed, its shares are up nearly 200% from their late October lows, as the overhang of the gaming license renewal was removed and as China looks set to slowly reopen.

Putting Your Investing Chips On Macau’s Casino Stocks In 2023?

Overall, many observers believe the worst has already passed for Macau’s casino operators as China looks set to gradually ease up Covid restrictions.

Meanwhile, the uncertainty related to the renewal of gaming licenses had also compounded the situation, with the US-associated casino names (like Sands China and Wynn Macau) suffering more given the rising geopolitical tensions between the US and China.

Given that there look to be positive developments on both those fronts, many investors are hoping that there are much brighter days ahead for Macau’s casino stocks.

If investors are interested in the sector, and its ongoing recovery, then Sands China, Galaxy Entertainment, and Wynn Macau are three stocks to keep an eye on.

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