As the glitz and glamour of ‘Sin City’ Las Vegas gradually seems to lose its sheen, the bright lights of Macau, the ‘Vegas of the East’, are poised to shine even brighter. An interesting observation made recently by Zachary Warring, a leading analyst from CFRA research, suggests that Macau-based casino operators might outperform their counterparts in Las Vegas over the course of the next year.
This paradigm shift from the Vegas Strip towards the Chinese territory of Macau is fueled by an uptick in the visitation rates in the Special Administrative Region (SAR), which holds promises of lucrative returns for investors. Not so long ago, just in December 2022, there were fewer than 400,000 visitors to Macau. But by the end of 2023, the visitor count shot up by a jaw-dropping 395%. However, in comparison to the pre-pandemic levels of 2019, the visitation was still at a modest 71.6%.
Warring’s study reveals potential for further acceleration in visitor rates for the year 2024, citing that visitation for the first quarter of this year was trending towards 80-95% of 2019 benchmark figures. He optimistically anticipates visitation to fully revert back to pre-Covid levels by the end of this year.
Notably, pre-pandemic Macau was a bustling hub for gamblers, a trend confirmed by a decade-long surge in visitors that peaked at a staggering 39.4 million in 2019. However, in 2023, throughout the thick of the pandemic, that tally crashed down to only 28.21 million. This provides operators a compelling opportunity to recoup a large untapped potential audience and return to pre-pandemic norms, providing a significant boost to their stock prices.
Warring’s top picks amongst Macau’s casino stocks favor three well-established US-based firms with gaming concessions in Macau: Las Vegas Sands, MGM Resorts International, and Wynn Resorts. Despite the challenging times, all three managed to retain strong ‘buy’ ratings in the market.
Las Vegas Sands, the behemoth of the Asian casino industry, is particularly enticing due to its comprehensive portfolio of non-gaming amenities. Recently, the company celebrated the 20-year anniversary of one of its five integrated resorts, the Sands Macau. Additionally, the possibility of Sands securing a casino license in New York City holds promising prospects for its investors.
In contrast, the sentiment towards the Las Vegas market is comparatively muted. Despite the city garnering $2.1 billion in revenues from the mega Las Vegas Grand Prix event and the Super Bowl in February, the absence of upcoming large-scale events casts a shadow over its near-term growth. This might put companies like MGM at a disadvantage, though its stake in MGM China could provide a buffer.
Caesars Entertainment finds itself at a challenging juncture with no stake in Macau. The company’s fortunes are primarily tied to Las Vegas and regional casinos, as well as online casinos, limiting its revenue streams.
Warring notes that while Caesars’ substantial debt burden might indicate a potential value trap, the sale of some underperforming assets in the coming year might offer a glimmer of hope for its investors. There’s a high degree of certainty that Caesars will reduce its extensive debt load by boosting its cash reserves through the sale of said assets. Nevertheless, the exact financial outcomes of these decisions remain to be seen.
In the grand scheme of things, it appears that Macau provides a brighter prospect for casino operators looking to outplay the uncertainties thrown into the mix by the global pandemic. As it stands, the cautious optimism towards the casino industry’s future in Macau might be a phenomenon worth following for the discerning investor.
