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China’s bet on Covid-zero worsens odds for Macau

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A woman walks past a Bank of China branch next to the Grand Lisboa hotel and casino (R) in Macau, China December 21, 2019. REUTERS/Jason Lee

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HONG KONG, Nov 29 (Reuters Breakingviews) - China’s commitment to a Covid-zero policy turns Macau into a roll of the dice. Beijing’s draconian restrictions easily could be in place through most of 2022. Resorts in the gambling hub sit half-empty, with gaming revenue at 30% of pre-pandemic highs. They can live without foreign tourists, but local visitors are their lifeblood.

A robust rebound is anticipated despite mounting nerves over casino licence renewals and the emergence of the Omicron Covid-19 variant. The six publicly traded operators, including Wynn Macau (1128.HK) and Sands China (1928.HK), are forecast to grow their top lines on average by some 80% next year, according to analyst estimates from Refinitiv. Those expectations depend on China relaxing pandemic constraints after hosting the Winter Olympics in February.

Chances of that happening are diminishing, however. The country will hold its 20th Party Congress in October. The quinquennial event is typically used to reshuffle the Communist Party’s upper echelons. This time, President Xi Jinping is maneuvering towards extending his term, cementing a spot in the history books alongside past leaders Deng Xiaoping and Mao Zedong.

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Such a momentous transition makes Beijing even more unwilling to risk another health crisis, and authorities are already on high alert to avoid new outbreaks read more . Group visas for Macau could remain on hold, hindering hordes of day-trippers. Hong Kongers, who once accounted for about 15% of gambling business, are mostly stuck at home.

Meanwhile, Xi’s desire to tackle inequality, coupled with efforts to rein in property market excesses, stands to deter high-rollers. An investigation into illegal gambling and money-laundering over the weekend seemed to confirm that the VIP market could come under pressure read more .

A November poll by credit rating agency S&P Global found that more than a third of 100-plus respondents don’t expect a full Macau recovery until 2024 at the soonest. That suggests a conservative approach, assuming no extra visitors and little to no top-line growth in 2022, is appropriate. At Wynn Macau, for one, that would mean revenue sticking at around the HK$13 billion ($1.7 billion) mark analysts forecast for this year, instead of the HK$21 billion they expect for 2022, according to Refinitiv. Applying its EBITDA margin and 15 times multiple, the equity would be worth far less than it is today. Investors are placing a big bet with increasingly longer odds.

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CONTEXT NEWS

- Macau police said on Nov. 28 they had arrested 11 people in an investigation into an illegal gambling and money-laundering syndicate. It came a day after businessman Alvin Chau, who organises trips to Asian casinos for big-spending gamblers, was questioned at a police station.

- Macau’s gross gaming revenue reached 72 billion pataca ($8.9 billion) in the first 10 months of 2021, an increase of 57% from a year earlier, according to the latest data released by the Macau Gaming and Coordination Bureau on Nov. 1. The figure for the same period in 2019 was 247 billion pataca.

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Editing by Jeffrey Goldfarb and Thomas Shum

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