When Australia-based casino operator Crown Resorts announced Monday that 18 of its employees were detained in China for undisclosed "gambling crimes," its shares slid, along with those of its peers such as Las Vegas Sands (LVS) and Wynn Resorts (WYNN) .
Then, suddenly, their luck reversed as stocks quickly rebounded as though the threat of a Chinese corruption crackdown is not looming. (Las Vegas Sands and Wynn Resorts are both members of Real Money's Vice Squad watch list.)
The reason: Macau-focused stocks such as U.S.-based Las Vegas Sands and Wynn are far less exposed to the types of Chinese regulations that led to the detainment of Crown employees than other foreign operators. Those employees most likely were arrested for illegally soliciting Chinese citizens to gamble at overseas resorts.
As Real Money reported, Wynn and Las Vegas Sands pull in roughly 60% and 50% of their EBITDA, respectively, from Macau sales, and the region could be stabilizing to the benefit of gaming operators as tourist-friendly projects, including a monorail system and more efficient border checkpoints, are rolled out. (EBITDA is a standard valuation metric that stands for earnings before interest, taxes, depreciation and amortization.)
"Near-term sentiment will be unfavorable for the Macau gaming stocks," Morningstar's Chelsey Tam said in a Monday note, highlighting the temporary sell-offs that resulted from the detainment of Crown employees. "However, we gauge that marketing activities in mainland China will resurface as the dust settles, though casinos will take a lower-profile approach," she added. Morningstar maintains a $122 fair value on shares of Wynn resorts and $50 value for Las Vegas Sands.
Shares of Las Vegas Sands and Wynn Resorts have been climbing in recent months as the Macau gaming market has accelerated sharply. Macau's August gaming revenue showed positive year-over-year growth for the first time since May 2014, according to the Gaming Inspection and Coordination Bureau, and July was the fourth straight month of year-over-year visitation growth.
Las Vegas Sands and Wynn have also unveiled new resorts in the region, which is controlled by only six operators that hold Macau gaming licences. In addition to Wynn and Las Vegas Sands, there are Melco Crown Entertainment (MPEL) , MGM Resorts (MGM) , Macau's SJM Holdings and Hong Kong's Galaxy Entertainment. Wynn's high-end Palace opened in late August, and Las Vegas Sands' Parisian opened n September.