Macau operator stocks gain as HK/Macau reopening talk resumes

Macau, tourism, stimulus package

Shares in Macau’s operators were mostly higher on Wednesday on renewed hopes for a resumption of travel between the gaming hub and Hong Kong.

There may be a limited reopening as early as mid-July, according to reports. Analysts at J.P. Morgan said the reopening is likely to only apply to fully vaccinated travellers and may include Mainland Chinese entering through Hong Kong.

The analysts note that more than 40 percent of the Chinese population has been fully vaccinated, while only 21 percent of Hong Kong residents are in the same situation.

The new measures would reportedly allow for guests to move freely within their hotel, including the gaming and retail spaces, but would exclude the swimming pool and even bar guests from leaving the property, in order to be exempted from the 14-day quarantine.

The plan would be a strong boost to the hard-hit gaming and tourism sectors of Macau, with the most recent data indicating that Macau welcomed just 866,063 visitors in May and only 3.39 million visitors in the first five months of the year.

During the same period in 2019, some 17.18 million visitors came to Macau, 12.2 million of which were from mainland China and 3.07 million of which were from Hong Kong.

Average hotel occupancy during the month of May was just 62 percent, with 3-star hotels registering over 70 percent occupancy, while average hotel occupancy during the first five months of the year amounted to just 51 percent.

The tourism and gaming sectors are seeing an improvement, though the pace has been gradual and not without its setbacks. Gross gaming revenue (GGR) registered in the first five months of the year saw a near-continual monthly increase (with the exception of February), with May’s GGR coming in at MOP10.44 billion ($1.31 billion), a 492 percent yearly increase.

J.P. Morgan analysts say that they are estimating a “(very) likely poor June GGR” while looking to a normalization of GGR into the second half of the year.

Investors welcomed the news, in particular given the recently announced requirement for 28 consecutive days without a new, local infection case in Hong Kong before Macau would relax its border entry measures.

Melco Resorts & Entertainment’s stock was up 3 percent in U.S. trading, while Galaxy Entertainment and SJM Holdings both gained more than 4 percent in Hong Kong. Wynn Macau ended up 1.8 percent, while Sands China was up just over 2 percent. Only MGM China ended lower on the day.

Previous analysts’ estimates indicate Hong Kong accounted for about 10 percent of Macau’s pre-pandemic gaming revenue, with that number rising if Mainland Chinese entering through the city are taken into account.

The analysts do note that a border reopening between Hong Kong and China would increase the benefit and provide a capital channel for punters.

Large-scale integrated resorts – such as Galaxy Macau, Venetian Macau or the Londoner – would primarily benefit, given the possible need to remain within the property.