CBRE Equity Research says investors should look to “double down” on Macau gaming equities, despite shares of Macau operators having rallied by an average of 23.7% over the past week.
The sudden surge comes after China last week unveiled a raft of measures aimed at stimulating the Chinese stock market, including cutting short-term interest rates, reducing the amount of cash banks must hold, a reduction of rates on existing mortgages, liquidity to brokers and insurance companies and an increase in listed SOE share buybacks.
CBRE’s John DeCree has described the stimulus measures as China’s most aggressive since the pandemic but also as a “green light” for investing in Macau, with all operators set to benefit.
“Even with the recent rally in the shares, Macau gaming equities have underperformed the S&P500 over the past year. Valuations and forward estimates for the sector remain undemanding, suggesting more upside ahead,” he said in a note.
“While some investors contemplate taking profits, we recommend doubling down on Macau. Even after last week’s rally, the average one-year forward EV/EBITDA multiple for Macau gaming equities is 9.2x, a two-turn discount to the group’s 2019 average of 11.2x.
“Consensus estimates in aggregate imply 7.3% revenue growth for Macau in 2025, which could prove to be overly conservative if stimulus measures are successful.”
Las Vegas Sands is the research house’s top pick for Macau given that it has the largest hotel room inventory and retail footprint in Macau and is therefore best placed to capitalize on increased demand and visitation. The company also faces relatively easy comparisons in 2025 as construction disruption at the Londoner concludes, DeCree explained, adding that Wynn also presents good value.
However, “While we prefer Las Vegas Sands and Wynn, the new stimulus should unlock technical and fundamental value across the entire Macau gaming group,” he said.
