Casino Stocks Tank On Macau Concession Review Uncertainty: What Should Investors Expect?

Sell-offs in casino stocks Las Vegas Sands Corp. LVS and Wynn Resorts, Limited WYNN continued on Thursday on concerns over a coming revision to the gaming laws in Macau.

Bank of America analyst Shaun Kelley provided some clarity on what's currently a very uncertain situation for investors.

What Happened? The changes being discussed in Macau include shortening the duration of Macau concessions, or licenses. All six of Macau’s current concessions are set to expire in June 2022. In addition, the local government is discussing increasing the requirement for local ownership of casinos above its current 10% minimum and placing limits on shareholder returns. There may also be more direct government involvement in the casinos and more scrutiny of criminal activity and casino employees.

Related Link: Why MGM Is The Top Casino Pick For Wells Fargo

Why It’s Important: Kelley said investors should understand that the new proposals aren't part of a new China “crackdown” on Macau but are instead part of a five-week public comment period regarding the Macau gaming law that’s part of the concession renewal process. At this point, there are very few details regarding the review process and what investors can expect.

Kelley said most shareholders are likely most concerned with the potential impact of the local ownership requirement and the possible restrictions on dividends and buybacks.

“Neither are clear, but the ownership requirement could either be enforced or increased theoretically (and in a negative scenario) resulting in dilution and more government influence,” Kelley wrote in a note.

He said the language used to describe the potential capital return restrictions suggests they're aimed at ensuring long-term financial stability in Macau.

For now, Kelley is watching Las Vegas Sands and Wynn, both of which have sizable operations in Macau, from the sidelines.

Bank of America has a Neutral rating and $55 price target for Las Vegas Sands and a Neutral rating and $105 price target for Wynn.

Benzinga’s Take: Bank of America’s Macau update comes just days after Wells Fargo also recommended investors avoid Macau for now in favor of casino stocks with exposure to Las Vegas and the U.S. online sports betting and iGaming markets. Wells Fargo named MGM Resorts International MGM its top overall gambling stock pick.