Posted on: October 3, 2024, 03:10h.
Last updated on: October 3, 2024, 03:10h.
Macau casino stocks surged last week with the help of monetary easing by the People’s Bank of China (PBOC) and fresh stimulus measures, but one analyst sees more upside ahead for the group.
In a new report to clients, CBRE Equity Research analyst John DeCree said that while profit-taking on the back of last week’s rally could be tempting for some investors, now could be the time to remain engaged with Macau gaming equities because the group is attractively valued and could generate more upside.
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,” wrote the analyst.
DeCree added that even with last week’s big gains, Macau casino stocks are value plays, noting the group trades at 9.2x enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). That’s well below the 11.2x the group traded at in 2019. He said consensus implies 7.3% gross gaming revenue (GGR) growth in 2025 in Macau, but that could prove light if stimulus measures are effective.
In his report, DeCree extolled a preference for Sands China parent Las Vegas Sands (NYSE: LVS). He said that the operator has the biggest room inventory in Macau and a strong retail presence, which positions it to benefit from an uptick in visitation to the gaming hub.
Sands will see easier comparisons next year as the Londoner’s full stock of rooms becomes accessible. Separately, the stock was one of the consumer discretionary names appearing on a Wells Fargo list of names trading at steep discounts with the potential to eliminate those valuation gaps.
DeCree also sees value in Wynn Resorts (NASDAQ: WYNN), the parent of Wynn Macau.
“While we prefer Las Vegas Sands and Wynn, the new stimulus should unlock technical and fundamental value across the entire Macau gaming group,” observed the analyst.
Some market observers believe the easing unveiled last week by the PBOC and Beijing’s new stimulus measures are just a start because the Chinese economy needs more. Direct stimulus to Chinese citizens could be a boon for Macau casino stocks because it could encourage more discretionary spending.
Nigel Green of deVere Group said that’s the road Beijing needs to take because the Chinese economy is still in a fragile place.
“Beijing’s efforts so far have largely focused on monetary policies, but fiscal stimulus—such as increased government spending on infrastructure projects and incentives for consumer spending — could provide a much-needed boost to economic demand,” he said. “Investors, both domestic and international, are watching closely to see whether Beijing will take bolder steps to solidify its economic foundation. If this happens, China will emerge stronger than ever.”
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