Macau Stocks Less Risky Than Investors Think, Says Seaport Research

Posted on: April 15, 2024, 05:02h. 

Last updated on: April 16, 2024, 09:15h.

In new coverage of Macau casino stocks released Monday, Seaport Research analyst Vitaly Umansky noted the asset class remains a long-term secular growth story, and is less risky and not as volatile as many investors believe it to be.

Macau China New Year gaming revenue
Chinese travelers in Macau ring in the New Year on Feb. 10, 2024. An analyst is constructive on several Macau stocks. (Image: Xinhua)

Umansky, a veteran of sell-side coverage of casino gaming equities, added that global market participants’ fears about lethargy in the Chinese economy — the world’s second-largest — potentially hampering Macau stocks are overblown.

While nearer term uncertainty stems largely from China’s economic softness and geopolitical concerns, the economic softness in China has not been a negative drag on Macau recovery and the geopolitical concerns are overemphasized,” noted the analyst.

Owing to strong contributions from mass-market bettors, Umansky forecast a compound annual growth rate (CAGR) of 18% from 2023 through 2025 for Macau gross gaming revenue (GGR). The analyst estimated that mass GGR will surge 19% over that period while VIP sales growth will be more muted at 7%.

Other analysts believe the addition of more hotel rooms and table games at integrated resorts in the Special Administrative Region (SAR) could drive an uptick in mass market visitation.

Galaxy Seen Gaining Share, MGM China Could Cede Some

Among the six Macau concessionaires, Umansky sees Galaxy Entertainment adding market share over the near term while MGM China, which is 56%-controlled by MGM Resorts International (NYSE: MGM), could lose some share.

“The critical drivers for Galaxy over the next one to two years will be to take premium gaming market share while growing with the base mass recovery,” he added. The company would also benefit from the opening of Phase 4 of Galaxy Macau, which would “significantly increase capacity,” observed the analyst.

Umansky acknowledged that while MGM China has recently been an impressive gainer of market share in Macau, those gains could be tempered as rivals bring new hotel rooms and other amenities to market.

“We forecast MGM [China] to lose share as other newer properties ramp up, base mass visitation increases, and other operators incorporate smart table technology, where currently MGM has a head start,” he noted.

Still, he initiated coverage of MGM with a “buy” rating and a $56 price target, implying upside of 30.6% from Monday’s close.

Melco, Sands Top Macau Stock Picks

Among the other Macau stocks, Umansky said the top pick based on valuation is Melco Resorts & Entertainment (NASDAQ: MLCO) while the best idea from a long-term risk/reward perspective is Sands China parent Las Vegas Sands (NYSE: LVS).

He pointed out that Sands China could lose some market share this year, “but by 2025, we expect [Sands China’s] GGR share to rise to 27 percent, compared to 24 percent in 2019, as The Londoner is fully optimized and base mass recovery accelerates.”

Umansky assigned a “neutral” rating with no price target to Wynn Resorts (NASDAQ: WYNN), noting that Wynn Macau could be hindered by Macau’s still slow VIP business and lack of offerings that appeal to mass market clients.