Macao stocks in free fall
Las Vegas and Macao are the major gaming hubs of the world, with Macao being the largest one and the only place where gaming is legal in China. However, Macao casino revenues have been falling ever since the Chinese government imposed stricter regulations in June 2014. This was done to curb corruption and has led to a fall in the number of VIPs that once flooded the casinos here.
As a result, stocks have fallen too. Wynn Resorts (WYNN) has been the biggest loser, losing almost 63% since June 2014. Melco Crown Entertainment (MPEL) was the second biggest loser with a ~46.5% fall since June 2014. Las Vegas Sands (LVS) has lost ~38% and MGM Resorts (MGM) has lost close to 34%.
The situation has been exacerbated by China’s economic and financial crisis. WYNN is in an especially tough spot since it continues to derive the majority of its revenue from Macao. In contrast, other players like LVS have diversified to other parts of Asia and the US. In fact, the situation is so bad that WYNN has been encouraging employees to take unpaid leaves.
In August alone, Wynn Resorts has lost close to 21% as compared to LVS’s 12% and MPEL’s 7%, while MGM has gained close to 16%. The index too has followed suit. The VanEck Vectors Gaming ETF (BJK) that replicated the VanEck Vectors Gaming Index has also lost close to 8% in August of 2015. The Consumer Discretionary Select Sector SPDR Fund (XLY) and the SPDR S&P 500 ETF Trust (SPY) have lost ~3.5%.
In this series, we will assess the current situation in Macao and what this means for the major casino companies. We will talk about Macao’s gross gaming revenues, revenue per visitor, visitor arrivals, China’s economic situation, and finally wrap up with a look at valuations of key players.