The stocks of Macau gaming operator Melco Resorts & Entertainment are seen as one of the most attractive “basement buy” options for investors looking for an opportunity in the midst of the COVID-19 pandemic.
In a Thursday report outlining the state of Macau gaming stocks, brokerage Bernstein noted that Melco’s share price is currently 36% below pre-pandemic levels – worse than all other Macau operators other than Wynn Macau, which is down 43%.
The depressed price comes despite strong signs of recovery in Macau in recent months, with May GGR reaching its highest level since January 2020 and more signs of life in early July after a short COVID-19 outbreak impacted June revenue figures.
“It has been almost a year and half since the beginning of the COVID-19 pandemic and the Macau gaming stocks have been through several rounds of ups and downs,” said Bernstein analysts Vitaly Umansky, Louis Li and Kelsey Zhu.
“Many of the stocks recovered close to pre-pandemic level in February this year but have since given back most of the gains.
“However, over the last few months investor fatigue has clearly set in. Investors have grown impatient with waiting and bearish views seem to dominate thinking .The situation today reminds us very much of late 2015, when prevailing thought was that Macau would never recover –this was the perfect timing to invest in Macau which then experienced a multi-year bull run.”
The analysts point out that Macau gaming remains one of the most lagged sectors in Asia, down 27% versus other regional indices showing much better recovery trajectories.
And with an improved outlook for the second half of 2021, Melco is particularly well positioned to take advantage given its strong exposure to the premium mass segment and, long-term, its Studio City Phase 2 development which will provide valuable capacity growth in the years ahead.
“Dark clouds and negative sentiment will surely pass,” the analysts said.
“The long-term structural story for Macau driven by mass and premium mass growth remains very strong, and the catalysts of meaningful recovery are in the foreseeable future.
“The pessimistic market offers a very good entry point for investors to get exposure into top-tier global gaming operators that have strong footprints in Macau. At the current price levels, we believe the risk-reward looks very attractive.”
Melco’s Nasdaq traded stocks closed at US$15.64 on Wednesday, down from a high of US$32.62 in April 2018 and US$25.02 in January 2020 just before the pandemic hit.
