Current industry valuation
As of January 3, 2016, the Macao casino industry valuation stands at 12.6x. This valuation is lower than the industry average valuation of 12.05x since February 2008. For 2015, the average valuation was 12x.
A turnaround in revenue and earnings is expected to be the most significant valuation driver for Macao casinos. A turnaround depends on the casinos’ ability to attract middle class (or mass market) tourists. Another driver will be government support. However, these drivers also remain the casinos’ key risks.
Our analysis on Macao
Macao casino revenues rebounded for the fifth consecutive month in November. In the short term, China’s crackdown on corruption is expected to keep the VIPs away from the casinos. However, the changing business mix, which is shifting to the mass market, gives hopes for a turnaround.
There are other green shoots visible too. For example, there’s been growth in average daily spending by visitors, which looked like a distant dream a few months ago. However, visitor volumes need to increase dramatically to be meaningful for Macao. Oversupply also continues to be a problem.
Analysts are now positive about Macao’s growth in 2017. The sector has definitely stabilized, and investors should keep a close watch on the sector.
Investors who want to avoid the risk of investing in a single casino company like Sands China (LVS), Melco Crown (MPEL), Wynn Macao (WYNN), and MGM China (MGM) can consider ETFs that invest in casino stocks. These ETFs include the Market Vectors Gaming (BJK) and the Consumer Discretionary Select Sector SPDR Fund (XLY).
Visit Market Realist’s Casinos and Gaming page to learn more about the industry, its indicators, and current trends.