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Analyst: Xi's Macau Visit Bullish For Casino Stocks

Casino stocks are finishing the year strong after investors have received good news out of Macau, China. In addition to positive progress on the trade war front, a Macau visit by China’s President Xi Jinping reportedly went very well.

Benzinga · 12/24/2019 14:40

Casino stocks are finishing the year strong after investors have received good news out of Macau, China. In addition to positive progress on the trade war front, a Macau visit by China’s President Xi Jinping reportedly went very well.

Economic Diversification

Xi recently visited Macau to commemorate the 20th anniversary of China resuming control of Macau following 442 years of Portuguese control. In the 20 years that have passed since, the small island has grown into the largest gambling hub in the world, generating more than four times as much gross gaming revenue as Las Vegas.

However, the Chinese government has been pushing Macau to diversify its economy away from just the casinos in recent years. Bank of America analyst Billy Ng said this week Xi was reportedly pleased with the progress Macau has made.

“He pointed out that Macau made significant progress on economic diversification, MICE, traditional Chinese medicine, and featured finance,” Ng said.

In addition, Ng said Xi likely wants to highlight successes in Macau as proof that the one-country-two-systems of government works. China has been dealing with protests in Hong Kong, which operates under a similar system, throughout 2019.

Policy Changes

Perhaps the biggest headline surrounding Xi’s visit was an announcement that China will be raising the daily limit on individual’s remittance from Macau to mainland China in the near future from 50,000 RMB ($7,135) to 80,000 RMB ($11,416). This change will allow for money to free more freely to and from Macau and comes roughly five years after China cracked down on illegal money laundering in the gambling hub.

Ng said the positive feedback from Xi’s visit is bullish news for Macau gaming operators. “Overall, we see strong support from the central gov suggesting lower policy risk,” he said.

Bank of America has the following ratings and price targets for U.S.-listed Macau casino operators:

  • Melco Resorts & Entertainment Ltd (NASDAQ: MLCO), Buy rating, $34.40 target.
  • Wynn Resorts, Limited (NASDAQ: WYNN), Buy rating, $140 target.
  • Las Vegas Sands Corp. (NYSE: LVS), Neutral rating, $69 target.
  • MGM Resorts International (NYSE: MGM), Neutral rating, $32 target.

Benzinga’s Take

Long-time Macau investors know the Chinese government was a thorn in the side of Macau revenue growth for several years during the corruption crackdown. Now that Xi seems to be highlighting Macau as the poster-child for one-country-two-systems, those policy headwinds may be shifting to policy tailwinds for investors.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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