Attention Macau Investors: There's No Need To Panic Over Government Policies

Long-time Macau gaming investors know that government policy risk is simply part of the equation. Macau casino stocks, including Melco Resorts & Entertainment Ltd(ADR) MLCO, Wynn Resorts, Limited WYNN, Las Vegas Sands Corp. LVS and MGM Resorts International MGM have experienced some volatile trading in recent days after a new wave of policy concerns surfaced in Macau. However, these latest rounds of headlines shouldn’t deter long-term investors, according to Bernstein analyst Vitaly Umansky.

What's Happened Lately?

From early 2014 to late 2016, the Macau gaming market endured a steep decline due to a government corruption crackdown in Macau. As the anti-corruption initiative continues, the government announced earlier this month that Macau ATMs will be now required to have “know your customer” mechanisms in place that require China-issued Union Pay card users to provide a China-issued ID card and consent to facial recognition identification confirmation.

While any new oversight regulations could potentially impact the casino business in Macau, Umansky said long-term investors shouldn’t get too hung up on the details in the face of such a massive growth opportunity.

“The risks (especially the policy risks) temper outsized valuation levels, even in light of renewed growth and better fundamentals,” Umansky said.

Related Link: Macau Tops Expectations With 16.3% April Revenue Growth

A Change For The Better

After Macau’s streak of 26 consecutive year-over-year monthly revenue declines came to an end last August, Macau has now strung together nine consecutive months of revenue gains. Share prices of Macau operators have understandably surged during that period. In the past year, Las Vegas Sands shares are up 28.4 percent, Wynn shares are up 40.9 percent, MGM shares are up 45.0 percent and Melco shares are up 54.3 percent.

Despite the huge gains, Bernstein sees significant upside remaining for a pair of Macau operators. The firm maintains Outperform ratings on Melco Resorts and Wynn’s China unit.

Disclosure: The author is long MLCO.