In an announcement that was greeted with relief on Wall Street, the Executive Council of Macau released a bill re-validating the present gaming structure in the Chinese colony with no substantial modifications.
Deutsche Bank analyst Carlo Santarelli called it “a decidedly favorable event, even if logically expected.” Added analysts for Jefferies Global Gaming, “There were few surprises in the bill, which we consider benign, therefore removing a major overhang and providing incremental support for valuations.”
The biggest change in the status quo is the elimination of the sub-concession level of casinos, with all six gaming operators – Sands China, Wynn Macau, MGM China, SJM, Melco Resorts & Entertainment and Galaxy Entertainment – granted parity as full concessionaires. Their licenses will be renewed for a term of 10 years, with an optional three-year extension in case of exigent circumstances. While the six current concessionaires are not yet assured of renewal per se, conventional wisdom on Wall Street holds that such will be the case.
“We view the latter point around subconcessions as largely moot, given the negligible functional distinction between the two classes of distinction,” opined Santarelli.
Outright wins for gambling operators are the maintenance of taxes on gross gaming revenue at their current 39-percent level and the abandonment of a proposal to force operators to seek government approval for dividend payouts, an idea that met with little public support.
“While there is little change to the current structure other than the shortened term, we noted the market sentiment was highly negative initially and was expecting drastic change. This development … should be a positive for valuations,” wrote Jefferies analysts.
There were some modest tweaks to the present arrangement in the bill, which now proceeds to the Macanese legislature. For one, a local managing director, who must be a resident of Macau, can have no less than a 15 percent ownership stake, up from 10 percent. Also, according to Santarelli, “The Council is proposing approval be required for major financial decisions, thereby leaving the language somewhat ambiguous.”
Jefferies analysts anticipate a continuing crackdown on junket operators, following the arrest of Suncity Group’s Alvin Chau, impinging on the VIP market and tightening the availability of credit (or “rolling-chip volume”) in Macau.
“Coupled with uncertainties over timing of border reopening with recent COVID outbreaks in Mainland and Hong Kong, the near-term GGR outlook remains bleak. This earnings visibility remains a challenge for us.”
Share prices for Melco, MGM Resorts International, Las Vegas Sands, and Wynn Resorts all reacted positively to the news, trading upward.
