CBRE Equity Research has warned against short-term investment in Macau-facing operators, with the exception of Wynn Resorts, after resuming equity research coverage of the large cap global gaming sector this week.
The resumption follows CBRE’s acquisition of Union Gaming in June and will see the new CBRE Equity Research provide initial coverage of Caesars Entertainment, Gaming and Leisure Properties, Las Vegas Sands, MGM Resorts, Penn National Gaming, VICI Properties, Wynn Resorts, DraftKings, Entain PLC and Flutter Entertainment.
In a lengthy industry overview to kick off CBRE’s coverage, Senior Analyst John DeCree cited multiple opportunities to get involved in the sector at attractive levels for those companies targeting the US domestic casino and online gaming markets but warned against investment in Macau given considerable uncertainty around the re-tendering of concessions, the reopening of borders and most pressingly China’s crackdown on cross-border gambling and headwinds facing the junket industry following last week’s arrest of Suncity Group CEO Alvin Chau.
“Given these notable headwinds, we remain guarded on the near-term outlook in Macau,” DeCree said.
Notably, DeCree believes the emergence of the Omicron variant and China’s cautious approach to the COVID-19 pandemic will result in Macau extending the current licenses of its six gaming concessions and sub-concessions for at least one year from their June 2022 expiry date due to the increasingly short timeline.
“Recall, it took about seven months for the government to award the final three licenses after publishing the Gaming Law in 2001,” he said. “While an extension would create some breathing room, it would hardly remove the overhang.”
On recovery from COVID-19, DeCree is bullish on the mass market which he expects to fully recover by 2023, but the arrest of Chau will send a “far-reaching ripple across the entire Asian gaming industry” which will inevitably impact the premium segments, including premium mass, in the near-term.
The VIP segment, he said, could recover to 25% of pre-COVID levels in 2023 on direct and non-junket play, “although the actual number could be much lower.”
Despite the cautious approach to Macau, DeCree does see value in Wynn Resorts as a clear pick of the bunch.
“Although the Macau portfolio will need to be repositioned to cater to the mass market going forward, the Wynn assets are among the best in the business,” he wrote.
“We see value in the shares of Wynn as a special situation and contrarian play. We believe many investors are overly focused on Macau and the company’s VIP exposure that they are overlooking the considerable value of the best-in-class, generational assets built by Steve Wynn.
“We believe newly-promoted CEO Craig Billings will have plenty of levers at his disposal to unlock value while waiting for a broader reopening and recovery in Macau.”
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