Domestic Gaming Equities Preferable to Macau Fare, Says Research Firm

At this point, it’s stating the obvious. But domestic gaming equities are the way to go over Macau equivalents, according to one research firm.

Price action confirms as much. Year-to-date, two of the worst-performing gaming names are Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) — a pair of operators relying heavily on Macau to drive earnings and revenue. Conversely, casino companies with strong US portfolios and no Macau exposure are seeing their shares soar.

The Macau recovery continues to be disrupted by false starts, while the lack of [Chinese] public holidays for rest of the year should cap the pace of the rebound,” said Jefferies analysts in a recent note to clients.

LVS and Wynn are off an average of 25.5 percent year-to-date, while MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR) — the two largest operators on the Las Vegas Strip — are higher by an average of 55 percent.

Domestic Gaming Equities Defying Conventional Wisdom

When the coronavirus pandemic initially became an international crisis in early 2020, analysts widely speculated Macau would rebound more rapidly than US gaming markets.

Conversely, Macau recovery is being stunted by lingering travel restrictions, inefficiencies in approving individual visit scheme visas (IVS), and jittery VIPs concerned about running afoul of China’s new cross-border money transfer policies.

“The ease and convenience of travel remains a key driver of visits, with the primary fear of potential tourists being quarantined when returning home,” said Jefferies.

More recently, shares of operators in the special administrative region (SAR) tumbled after authorities there unveiled policies, that if enacted, could result in elevated government involvement and oversight of the gaming industry.

Digitization Spurring Domestic Gaming Equities

Broader adoption of cashless gaming and the rapid expansion of iGaming and regulated sports wagering — all of which were stoked in some part by the pandemic — are among the other factors supporting domestic gaming equities. Operators are on to something on those fronts because those segments favorably augment slower-growing land-based casinos.

We expect a combination of favorable legislation and consumer adoption to drive growth in US online sports betting, and internet gambling (i-Gaming) from $900 million/$1.5 billion markets today to $39 billion/$14 billion in 2033, equating to 40 percent/27 percent CAGRs for over a decade,” said Goldman in a note to clients earlier this year.

When it comes to digital gaming, Macau is stymied, because China does not permit online wagering. Regarding sports wagering, the SAR’s sports lottery only allows betting on basketball and soccer.