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Wednesday, January 11, 2017, 00:26

Casino stocks still sound even when the chips are down

By Peter Liang

Macao gambling stocks are making a comeback after a two-year slump. Investors believe that efforts by casino operators to diversify into the holiday-resort business to lure tourists and leisure gamblers are paying off.

Indeed, the fortunes of key casino operators began taking a turn for the better in the second half of last year. Reversing a 26-month downslide, gross gaming revenues went up in August from a year earlier. The uptrend in gaming revenues has since continued.

Stock analysts have attributed the turnaround in gaming stocks’ fortunes to the opening of new resorts, including Wynn Resorts’ Wynn Palace and Sands China’s The Parisian. At the same time, the Macao government has invested heavily in promoting the enclave as a family holiday resort.

However, gaming revenues aren’t likely to return to the levels seen in the go-go years. The share prices of major casino operators have also adjusted downward to reflect the decline.

The renewed buying interest in recent weeks shows that many investors think prices of gambling stocks have slipped to levels that have fully discounted factors seen to have depressed gaming revenues. The winners will be those regarded by investors as having done the most in diversifying their income base.

The price performance of various gambling stocks over a longer term was mixed. Las Vegas Sands and Caesars stood out among the group, having gained more than 30 percent and 20 percent, respectively.

Some stock analysts have warned that the earnings potential of casino stocks in the near future could be eclipsed by the projected glut in hotel rooms in Macao. Some casino operators have already cut room rates to compete for holidaymakers.

Macao casino operators are also facing increased competition from their South Korean counterparts which are reported to be offering hard-to-resist incentives to entice high rollers from the Chinese mainland. Soon, they’ll be facing new challenges from Japan which has lifted its ban on gambling.

Picking stocks in these uncertain times is tough. To many investors, Macao casino stocks still look like sound bets.

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