Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<p>Macau's top gaming stocks <a href="https://www.straitstimes.com/business/companies-markets/macau-casinos-see-188-billion-wipeout-as-china-tightens-control" target="_blank" rel="noopener">lost</a> a record USD18 billion in combined market value on 15 September 2021 after the Macau administration <a href="https://www.ggrasia.com/public-consultation-re-gaming-law-review-from-sept-15/" target="_blank" rel="noopener">announced</a><a href="https://www.ggrasia.com/macau-may-end-casino-sub-concessions-directly-monitor-ops/" target="_blank" rel="noopener"></a> a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. </p><p>Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government's direct supervision of casino operations drew the most consternation from investors and analysts. </p><p>The sweeping revisions compound the woes of Macau's casino operators, such as <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK) </a> and <a href="https://www.smartkarma.com/entities/sands-china-ltd-088dbd12-a0e9-4516-a68f-6a3cf8aa065d" target="_blank" data-smartkarma-citation="entities:28515:1" rel="noopener">Sands China Ltd (SCHYY US)</a>, which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.</p><p>While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October's Golden Week was <a href="https://www.ggrasia.com/macau-oct-golden-week-daily-average-visits-dip-93pct-y-o-y/" target="_blank" rel="noopener">down 93.7%</a> on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. </p><p>Amongst its peers, <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a>  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.</p><p>In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a>'s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.</p>

Macau's top gaming stocks lost a record USD18 billion in combined market value on 15 September 2021 after the Macau administration announced a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government's direct supervision of casino operations drew the most consternation from investors and analysts. The sweeping revisions compound the woes of Macau's casino operators, such as Wynn Macau Ltd (1128 HK)  and Sands China Ltd (SCHYY US), which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October's Golden Week was down 93.7% on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. Amongst its peers, Wynn Macau Ltd (1128 HK)  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on Wynn Macau Ltd (1128 HK)'s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.

Wynn Macau (1128 HK) - Gaming Law Revisions and Impact on Financial Covenants

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

Lotte Tour Development Co, Ltd. / Equity Bottom-Up

Lotte Tour Development Co, Ltd. (032350 KS)

<p>The sharp government crackdown on the Macau casinos is a boon on the Korean casinos. Because the government crackdown on the Macau casinos could last longer (next 6-12 months, for example), we believe that this is likely to lead to benefit the major casino operators of other major Asian countries such as in Korea, including companies such as Paradise and Lotte Tour Development. </p><p><em>At this point, the great unknown regarding the Macau casino industry is how aggressively the Chinese government will try to impose on how the major casinos in Macau operate.</em> We highlighted four major factors that the CCP could aggressively intrude on them including dividends, BOD representation, ownership, and expansion of non-casino businesses. </p><p>Although there have been some increased regulatory scrutiny by the CCP on the Macau casinos in the past, this new crackdown in the past two weeks is probably one of the most restrictive and problematic ever. </p><p><strong>What is different this time around is timing.</strong> Unlike the previous crackdowns, this crackdown has involved not just the gambling sector but also other major sectors including education, technology, and entertainment.</p><ul>
<li>At its core, it deals with the fundamental issue of capitalism vs. communism, the details of which is beyond this article.</li>
<li>For the investor that actively trade the Asian casinos, it is very difficult to "buy the dip" since if indeed the CCP becomes major shareholders of these Macau casinos (including BOD representation), these companies would not be acting in the best interests of their shareholders and would not be maximizing their capital efficiency.</li>
<li>Rather, they would take directives from the CCP and minority shareholders would be screwed. </li>
</ul>

The sharp government crackdown on the Macau casinos is a boon on the Korean casinos. Because the government crackdown on the Macau casinos could last longer (next 6-12 months, for example), we believe that this is likely to lead to benefit the major casino operators of other major Asian countries such as in Korea, including companies such as Paradise and Lotte Tour Development. At this point, the great unknown regarding the Macau casino industry is how aggressively the Chinese government will try to impose on how the major casinos in Macau operate. We highlighted four major factors that the CCP could aggressively intrude on them including dividends, BOD representation, ownership, and expansion of non-casino businesses. Although there have been some increased regulatory scrutiny by the CCP on the Macau casinos in the past, this new crackdown in the past two weeks is probably one of the most restrictive and problematic ever. What is different this time around is timing. Unlike the previous crackdowns, this crackdown has involved not just the gambling sector but also other major sectors including education, technology, and entertainment.
At its core, it deals with the fundamental issue of capitalism vs. communism, the details of which is beyond this article.
For the investor that actively trade the Asian casinos, it is very difficult to "buy the dip" since if indeed the CCP becomes major shareholders of these Macau casinos (including BOD representation), these companies would not be acting in the best interests of their shareholders and would not be maximizing their capital efficiency.
Rather, they would take directives from the CCP and minority shareholders would be screwed. 


A Crackdown on the Macau Casinos Is a Boon on the Korean Casinos

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Sydney Airport, Softbank, Evergrande, Shinsei, Macau Gaming, Shui On Land

Melco International Development / Event-Driven

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<p><em><strong>This week in StubWorld ...</strong></em></p>
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<p><a href="https://www.smartkarma.com/entities/melco-crown-entertainme-adr" target="_blank" data-smartkarma-citation="entities:810:1" rel="noopener">Melco Resorts &amp; Entertainment (MLCO US)</a> and other Macau gaming plays roll over after a 45-day public gaming consultation kicks off today.</p>
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<p>Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...



Melco Resorts &amp; Entertainment (MLCO US) and other Macau gaming plays roll over after a 45-day public gaming consultation kicks off today.



Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: Consultation Batters Macau Gaming Counters

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Galaxy Entertainment Group / Equity Bottom-Up

<p>For our next Webinar, we are thrilled to welcome Insight Provider <a href="https://www.smartkarma.com/profiles/howard-j-klein" target="_blank" data-smartkarma-citation="accounts:1005" rel="noopener">Howard J Klein</a>. Howard will go over his outlook on the casino and gaming sector in Asia for 2022 and present opportunities for investors in this space.</p>
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<h3>The webinar will be hosted on Wednesday, 6 October 2021, 11:00 SGT/HKT.</h3>
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<h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=86290932330" target="_blank" rel="noopener">Register for the Webinar here</a></h2>
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<p>Howard J Klein has 25+ years of experience as a C-level executive of the casino industry in operations, marketing, international development, and strategic planning. He is currently a consultant specialising in the casino space, an industry expert contributor, and publisher of a subscription letter called "The House Edge". He gained extensive experience in marketing and development in the Asian gaming market while a senior executive at Caesars, Ballys Grand, and Trump Taj Mahal, and he was part of senior executive teams that valued acquisitions and mergers with companies in the casino, hotel, entertainment, and restaurant space.</p>
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For our next Webinar, we are thrilled to welcome Insight Provider Howard J Klein. Howard will go over his outlook on the casino and gaming sector in Asia for 2022 and present opportunities for investors in this space.

The webinar will be hosted on Wednesday, 6 October 2021, 11:00 SGT/HKT.




Register for the Webinar here

Howard J Klein has 25+ years of experience as a C-level executive of the casino industry in operations, marketing, international development, and strategic planning. He is currently a consultant specialising in the casino space, an industry expert contributor, and publisher of a subscription letter called "The House Edge". He gained extensive experience in marketing and development in the Asian gaming market while a senior executive at Caesars, Ballys Grand, and Trump Taj Mahal, and he was part of senior executive teams that valued acquisitions and mergers with companies in the casino, hotel, entertainment, and restaurant space.



Smartkarma Webinar | Asian Casino Outlook 2022: Challenges and Opportunities

Hong Kong

Galaxy Entertainment Group is a leading hospitality and gaming company that develops and operates integrated resorts, hotels, and casinos in Macau. Its key properties include Galaxy Macau, Broadway Macau, and StarWorld Macau, offering casino games, entertainment, and related hospitality services. The company is headquartered in Hong Kong and was established in 2002.

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Galaxy Entertainment Group (27 HK)

Wynn Macau (1128 HK) - Gaming Law Revisions and Impact on Financial Covenants

Macau's gaming stocks lost USD18 billion in market value after the Macau administration announced proposed revisions to Gaming Laws. We discuss the...

Jason Yap, CFA

A Crackdown on the Macau Casinos Is a Boon on the Korean Casinos

The sharp government crackdown on the Macau casinos is a boon on the Korean casinos. Because the government crackdown on the Macau casinos could...

Douglas Kim

Last Week in Event SPACE: Sydney Airport, Softbank, Evergrande, Shinsei, Macau Gaming, Shui On Land

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

StubWorld: Consultation Batters Macau Gaming Counters

The negative price reaction to Macau gaming stocks is understandable - an extension appeared a logical short-term fix. A 45-day consultation period...

David Blennerhassett

Smartkarma Webinar | Asian Casino Outlook 2022: Challenges and Opportunities

On 6 October, 11am SGT, join us as Howard J Klein goes over his outlook on the casino and gaming sector in Asia for 2022 and presents opportunities...

Smartkarma Research

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