Casino Stocks Under Pressure Amid Macau Junket Liquidity Concerns

Shares of Macau casino operators Melco Resorts & Entertainment Ltd(ADR) MLCO, Wynn Resorts, Limited WYNN, Las Vegas Sands Corp. LVS and MGM Resorts International MGM were all getting hammered in early Friday trading after Bloomberg reported that one of Macau’s largest junket operators is concerned about liquidity. According to Bloomberg, Daiwa analyst Jamie Soo wrote that a major Macau junket operator warned customers and staff of “liquidity channel impairment” and “advised clients to withdraw money from affected bank accounts.”

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Macau’s junket operators work with the casinos to usher in critical VIP gamers. Junket operators reach out to wealthy gamblers directly and lure them to Macau by offering travel and accommodation promotions and other personalized services. In essence, junkets are responsible for a large portion of the casinos’ VIP revenue.

The junkets have been at the heart of China’s crackdown on money laundering that began back in early 2014. However, Soo reports that law enforcement officials have stepped up their game in Macau and have been flagging and freezing questionable bank accounts.

According to Soo, the concerns are likely driven by “impairment of the junket’s affiliated cross-border funding channels such as underground banks.”

The initial 2014 crackdown spooked Macau high rollers and led to 26 consecutive months of negative gaming revenue growth in Macau. However, Macau snapped that losing streak back in August 2016 and seemed to have finally moved past the issue. In June, Macau reported 25.9 percent gaming revenue growth, its 11th consecutive month of gains.

In light of the new junket concerns, Daiwa maintains a Neutral outlook for Macau. Soo named the China unit of Las Vegas Sands as the firm’s top stock pick in the space.

Disclosure: The author is long MLCO.