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Macau Casino Shares Plunge Following Week-Long Covid-19 Lockdown
By Jeff Osienya Jul 17, 2022 IndustryGaming stocks slide in Hong Kong as Macau imposes a fresh one-week lockdown of non-essential business to curb the resurgence of the Coronavirus pandemic. Industry observers expect the situation to last longer than a week.As gambling businesses worldwide show signs of recovering from the downtime caused by Covid-19 closures in 2020, Macau seems to be slipping back into a pandemic-inspired slump. Gaming operators in the Chinese Special Administrative Region (SAR) have stumbled into yet another coronavirus hurdle, snuffing out the flames of its post-pandemic recovery.
Macau’s administration has just imposed a new week-long lockdown amid a zero-Covid policy as the SAR and China fight to crush Coronavirus reinfections. The Chinese SAR moved to close all non-essential businesses and ask all residents to stay home, save for short trips to run errands pertaining to essential activities. Officials had to take the tough stance after the city reported a new outbreak of an Omicron coronavirus sub-variant that has led to over 1,500 new Covid cases in less than a month.
Thus, no resident can enter or leave any of the 30 zones marked ‘High Risk’ in the gaming haven. To enforce the stringent rules, the police have been deployed to deal with any violators. The first and last Covid-related closure mandated by the Macau authorities was a 2-week lockdown in February 2020, when the rest of the world was also grappling with the devastation of the novel virus. Regrettably, the new state-mandated requirement to shut down all casinos has led to a sharp decline in some of the biggest gambling stocks in Hong Kong.
Significant Drop in Big Gaming Companies’ Stocks
The dive in casino shares and dollar bonds began on Monday as soon as the lockdown announcement was made. All six licensed casino operators saw their Hong Kong-listed stocks drop on Monday, right after the lockdown announcement. MGM China, Wynn Macau, Melco International, and Sands China fell by 6.29%, 7.06%, 7.66%, and 8.47%, respectively. SJM Holdings and Galaxy Entertainment, the other two gaming operators in Macau, also incurred losses and saw a drop in stock shares.
This picture is a stark contrast to what happened earlier in the year when casino stocks soared after the government announced the extension of casino licenses. At that time, the SAR government had also disclosed that it would maintain the number of licenses at six. But, of course, the biggest beneficiaries of this were the region’s six dominant operators. Now, given that gambling revenue makes up the lion’s share of Macau’s annual income, the current situation is one of the most precarious positions the SAR will ever have to endure.
Unsurprisingly, Hong Kong’s Hang Seng Index also fell by 3.86%. Besides the plight of casinos, the dip also resulted from a recent crackdown on big tech giants like Tencent and Alibaba. Huge fines were imposed on the tech companies for their failure to adhere to anti-monopoly law, among other violations.
Lockdown Expected to Last Longer Than 7 Days
Analysts at Bernstein have told investors that the closures may last longer than a week. Lead analyst Vitaly Umansky noted this was probable, especially since “Macau is still at the height of its biggest ever Covid outbreak and has reported 1,785 positive cases since June 18.”
Umansky went on to elaborate on the implications of what a prolonged closure would mean for the region. He said:
Quote“Expectations are already in place for a very poor GGR [Gross Gaming Revenue] environment in July. We think the closure is not a meaningful fundamental impact but could weigh on trading sentiment. Channel checks indicate that Macau’s July MTD GGR (July 1-10) was only MOP 200mn (US$24.8mm), with ADR of MOP20mm (US$2.48mm), -97% compared to July ’19 ADR and -93% y/y compared to July ’21 ADR (also down 76% m/m from June ’22 ADR). The MTD GGR was significantly constrained by COVID measures and border closure.”
Umansky concluded by forecasting an eventual recovery contingent on lifting travel restrictions and reopening gambling businesses. Based on the current conditions, Bernstein expects a significant drop in GGR over the coming months, with about 98% and 90% drop in July and August, respectively – compared to 2019 figures recorded in the same months.
These predictions were backed by J.P Morgan analyst DS Kim who advised that investors would most likely have to consider July and August as ‘write-offs’ as the numbers are going to slump even further.
The World’s Largest Gambling Mecca Shaken to its Core
The future of the Macau gambling industry now stands threatened by a prolonged shutdown, which is sure to keep more investors from fully committing to any gambling business dealings. The scene is one to watch keenly especially considering the controversial gambling bill that will see the casinos taxed more and the soon-to-expire licenses renewed to a shorter tenure than the previous decades.
Shutting down the casinos seems to have been the last resort as the city had earlier on closed other businesses, including bars and cinemas, leaving out its primary income source. One thing to note is that the last few months have seen the government tighten its stance on cross-border gambling, restricting individuals and groups from leaving the country to gamble elsewhere.
All these measures were introduced to keep the cash flow from gambling revenue homebound. Unfortunately, while times have been tough for casino operators, the current situation seems to be the worst yet. On the flipside, Macau residents have been going through several testing rounds, and the day-to-day cases are slowly going down, with the current rate being about 32 new cases per day.
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