JP Morgan Says US Casinos in Macau Already Seen the Worst

Days after Fitch calmed investor fears that US casinos in Macau may be in for a rough year ahead, JP Morgan, another respected investment bank, upgraded the stocks of the US-owned casinos in the special administrative region from Neutral to Overweight.

This reflects a positive outlook for the properties tied to their US owners, including MGM China, Sands China, and Wynn Macau. The outlook has to do with Macau’s resilience in the face of the pandemic and sustained efforts at recovery.

While stock prices plummeted by 60% on average over the past 12 months, JP Morgan’s Livy Lyu, Amanda Cheng, and DS Kim are confident that results will begin to improve before long.

Even the news about a new COVID-19 outbreak in Macau and the mainland has not dampened stocks. This led the analysts to conclude that the stocks had already been through their worst period.

The Worst Is Over: Recovery on the Horizon

Macau notably registered foreign-imported Omicron cases after the SAR managed to hold out for two years without reporting almost any cases of the infection. The latest case has prompted a quick lockdown and a ban on international flights for two weeks. The analysts note stated:

“We turn incrementally bullish on Macau SAR gaming. Most investors seem hesitant to bottom-finish, citing license risks, VIP fallout and uncertain travel policies as key concerns. These are all valid, but we think the level of concern is unnecessarily high.”

JP Morgan analyst note

The analysts also considered whether license holders have to fear further tax hikes or any other disruptions. License losses are not very likely, even though Macau will probably reduce the period for which a permit is issued from 20 years to ten years.

Junkets Won’t Hit VIP Revenue, Says JP Morgan

The junket model has also been completely eliminated in Macau at the behest of Beijing, and operators of such business models will now no longer be available. The analysts noted that the impact isn’t as fundamental when adjusting for this new development, citing only 10% of pre-COVID-19 EBITDA. Suspending junket operators has not impacted VIP demand either, the analysis continued:

“Some may be concerned about a potential spill-over impact, but history – and our recent checks – suggest demand from premium mass or even direct VIP remains unscathed from junket fallout.”

JP Morgan analyst note

With this in mind, Macau’s casino stocks will likely begin climbing back up, although this recovery will take some time.

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