Perhaps the most extreme bet that investors can make on Covid recovery comes in the form of Macau casino stocks. Is now the time to lay that money down?
The stocks are leaping after the Chinese authorities said they would allow individual visitors from the mainland to resume travel to Macau. Greater China accounts for more than 90% of all visitors to the former Portuguese enclave.
As of today, individual visitors are allowed to visit Macau from the neighboring city of Zhuhai. Package tours can also resume. China also set out a timeline for tourists from the whole country to resume.
The "individual visit scheme visa" for entry to Macau starts from Zhuhai as of August 12. It will extend to the whole of Guangdong Province as of August 26, and all of China starting September 23.
In other words, business is back. Macau is the world's biggest gambling Mecca, with gross gaming revenue of $36 billion in 2019. But it depends almost entirely on visitors from mainland China and Hong Kong.
Guangdong Province, across the border from me here in Hong Kong, is China's biggest single economic driver, around 10% of the economy. It accounted for almost half (46%) of the total visitors to Macau in 2019. Of the 27 million visitors from mainland China to Macau last year, 3 out of every 4 arrived in tour groups or on the individual visit scheme.
Macau's casinos used to operating round the clock and round the year, but closed entirely for 15 days in early February. They were already suffering after the individual-visitor visa was suspended in late January. As a result, Macau casino operators are staring at billions in losses for the June quarter. It will be their worst-ever performance, with billions in lost revenue.
The main casino stocks to watch are Sands China SCHYY, Wynn Macau WYNMY, MGM China MCHVY, Melco Resorts & Entertainment (MLCO) and Galaxy Entertainment Group GXYYY.
They are almost all looking at double-digit gains this week: Melco is up 15.0% since Friday's close, Wynn China up 13.2%, Sands China up 13.1%, Galaxy up 10.8%, and MGM China the "laggard" with 9.0% gains.
But there is plenty of ground to reclaim. Those gains nevertheless leave them all down almost 20% for the year, bar Galaxy and its 4.7% gain in 2020.
Sands China, which operates casinos such as the Venetian and the Parisian, already reported a $549 million loss in Macau for Q2, after almost its entire revenue was wiped out. Wynn Macau then announced a $352 million loss for the June quarter, also with virtually no business.
The initial reopening of casinos in Macau on February 20 was "an empty gesture," Instinet's gambling analyst Harry Curtis said in a report. Without the revival of the individual-visitor scheme, the "reopening is akin to keeping a body alive without the food required to sustain it."
What few visitors who could get permission to make the trip still had to serve 14 days of quarantine on their return to China. A quick visit for a few hours at the tables hardly seemed worth it. That started to change on July 15, when the Guangdong provincial government began waiving the mandatory quarantine on arrivals from Macau, so long as the traveler had a nucleic-acid test within the past 7 days that is negative for Covid-19.
As of today, visitors entering mainland China will now be allowed to travel to all provinces nationwide without any quarantine. They previously had to stay in Guangdong Province for 14 days, even though the quarantine there had been lifted.
Still, the gambling take has been down more than 90% for four straight months through July, year on year. Gambling operations will take some time to revert to trend, since the casinos are still required to enforce social-distancing rules.
The number of gambling tables is down 18% and slot machines down 58% from Q1. Casinos had to turn off some slots, space out gaming tables further, limit the number of punters at a card table and stop people from standing behind players.
Where Macau's gambling revenue goes, the rest of the city follows. Around three-quarters of the workforce in Macau work in some connection with the city's 41 casinos. Likewise, around three-quarters of tax income comes from the casino tables for the city, which has a tiny population of just 615,000.
The casinos are of course tightly licensed by the city. They have been mandated to maintain employment, which has led to each casino bleeding around $2 million in costs every day.
Retail rents, driven by luxury-goods brands that depend on gamblers flush with cash, have cratered 20.7% in the first half of 2020. High-street property values are down a similar 21.3%. Luxury apartment values have plunged 10.4% in the first half of 2020, with mass-market property down 5.5%.
International visitors, including those from Hong Kong, are still prevented from traveling to Macau. But the injection of business from China will be more than enough to sustain the gambling operators. Game on.
