Analyst Note| Jennifer Song |
The planned review of Macao's gaming laws sparked a significant sell-off of casino-operator shares as the proposals by Macao's Gaming Supervision and Coordination Bureau signal tighter regulatory control. We think this could reduce the visibility on casino operators’ long-term business outlook, and we raise our fair value uncertainty rating for the Macao gaming companies to very high from high, and we lower our fair value estimates by 22%-45%, as we believe some of the measures may limit the pandemic recovery and impact the sector’s business model. We adjust our cost of equity 2% higher to 12%, to reflect an increased risk premium tied to lower visibility of Macao gaming companies' long-term outlook. As such, we lower Sands China to HKD 26.50 per share from HKD 43.00, SJM Holdings to HKD 8.60 from HKD 12.60, Wynn Macao to HKD 9.20 from HKD 17.00, Melco Resorts to USD 13.80 from USD 25.00, MGM China to HKD 8.60 from HKD 15.00, and Galaxy to HKD 48.50 from HKD 62.00. Additionally, we also assume VIP contribution to remain at 20% of the prepandemic levels, with Wynn Macau, Melco Resorts, and MGM China seeing more downside, given their higher position in VIP segment. Our base case assumes revenue from the mass segment to return to prepandemic levels in early 2023, which incorporates a prolonged pandemic impact.