Melco, Sands Lead Macau Rally on Reports of Shanghai Lockdown Loosening

Posted on: May 13, 2022, 01:25h. 

Last updated on: May 13, 2022, 03:14h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The Chinese Communist Party (CCP) may be seeing the error of its ways when it comes to its zero COVID-19 policy, and that’s to the liking of Macau gaming equities.

Macau gaming equities
Casinos in Macau. Shares of operators surged Friday on reports of Shanghai loosening its COVID-19 lockdown. (Image: Paul Yeung/Bloomberg)

Amid a strong day for risk assets, gaming stocks soared Friday on reports Shanghai — China’s largest city — could soon loosen what’s arguably been one of the world’s most punitive coronavirus lockdowns. Shanghai is in its seventh week of lockdowns, and reported nearly 2,100 new cases of COVID-19 today.

For now, plans to reopen Shanghai center around resuming in-person education and medical services and resumption of some industrial production. But those rumors were enough to spark a rally in moribund Macau stocks today.

Melco Resorts & Entertainment (NASDAQ:MLCO) — one of the most battered Macau gaming equities — surged 15.2%. Las Vegas Sands (NYSE:LVS), which operates five integrated resorts in the special administrative region (SAR), jumped 15%, while Wynn Resorts rose 13.11%.

Concessionaires Need Some Good News

Following a 15-day February 2020 of Macau casinos, US gaming operators implemented multi-month closures of their venues, prompting analysts to speculate that as pandemic concerns abated, the Chinese territory would lead the global gaming rebound.

The opposite is proving true, as Las Vegas and US regional casino markets are on fire, while market observers consistently push out projections for when Macau will return to pre-pandemic revenue numbers. That while US casinos set a gross gaming revenue (GGR) record in the first quarter, with plenty of companies saying the momentum continued into April and May.

Conversely, the recovery in Macau is being stymied by the CCP’s draconian lockdowns, which prevent residents of mainland China and Hong Kong from traveling to the gaming hub.

As a result, debt burdens are ballooning for concessionaires, prompting analysts to crunch the numbers on time lines to insolvency – research that turned up the point that some Macau operators may last less than a year at current burn rates.

Macau Gaming Equities Troubled

Obviously, today was a good day for Macau gaming equities. But that doesn’t mean the environment is suddenly sanguine. Over the course of the pandemic, Chinese officials dangled reopening measures that would benefit Macau, only to go back on those pledges. Some officials note it’s unlikely the zero COVID policy will be reversed.

In the face of mounting uncertainties due to COVID-19, one thing remains certain — China will stick to its dynamic zero-COVID policy that has proven pragmatic and effective,” an unidentified party official told the state-run Xinhua News Agency.

For long-term investors, a silver lining from the Macau stock struggles is that operators are motivated to pursue other opportunities. For example, Wynn is developing an integrated resort in the United Arab Emirates (UAE) while maintaining an interest in New York. Likewise, Las Vegas Sands is tied to rumors regarding Thailand, and is interested in bringing a gaming property to Florida, New York, and Texas.