Macau stocks rally on “baby-step” to border normalization: JP Morgan

Stocks in Macau’s gaming operators rose on Wednesday following the relaxation of testing requirements for visitors from Guangdong, which were seen as a “baby-step” to normalization, J.P. Morgan said.

In a brief note, the firm also points out that trading volumes are light, which may have accentuated the price moves. All six operators were gained, with a range of between 4 percent and 8 percent higher, compared with a gain of just 1 percent in the Hang Seng Index.

The Macau government has eased travel restrictions for those coming from Guangdong to the need for a Covid test 48 hours before departure, instead of the 24-hour testing regime that has been in place since mid-March. 

“This is still far from the more normal requirement of 7-day validity last year and it’s unlikely to move the needle for actual demand, in our view,” the firm wrote. “That said, directionally speaking, this can still be seen as a baby step toward a more normal travel/mobility environment, hence we view it as positive.” 

J.P. Morgan said it may also have been a bottoming out of sentiment for any counters that will benefit from reopening, such as Tongcheng Travel and CR Beer, which also rallied. 

Despite the stock gains, analysts remain highly cautious about any near-term recovery in Macau due to the ongoing Covid crisis in China. 

Macau’s casinos recorded a 10.9 percent fall in mass GGR in 1Q22 compared to the prior-year period, whilst VIP GGR nearly halved, according to data from the Gaming Inspection and Coordination Bureau (DICJ). 

Compared to the previous quarter (4Q21), the mass GGR number was down 8.8 percent, whilst VIP GGR was down 1.2 percent. 

Analysts from Bernstein on Tuesday noted Macau’s April 11 to 18 GGR was down 25 percent week on week to MOP75 million, hitting its lowest since September 2020 when China resumed its IVS travel into Macau. 

There are over 30 million people in 22 cities in China currently under city-wide lockdowns, according to Bernstein. Inclusive of those under slightly eased lockdown in Shanghai, the number of affected people is closer to 55 million, said the brokerage. 

Jefferies analyst David Katz also heralded near-term headwinds as a result of the Shanghai lockdown. The gaming revenue recovery is likely to be delayed past the upcoming Labour holidays in China due to the border controls in place and with 25 Chinese provinces reporting local infections in the past five days. That bad timing means a longer stretch before the long-awaited holiday tourism breakout, he said.