Morgan Stanley sees easing trade war to benefit Macau casinos

Morgan Stanley sees easing trade war to benefit Macau casinos

A perceived improvement in relations between the U.S. and China should have a positive impact on gaming operators in Macau, financial services firm Morgan Stanley said in a note.

Macau News Agency reported that the prospect of resolving conflicts between the two economic powerhouses, after talks at the G20 Summit last weekend, was one factor that boded well for stock Morgan Stanley sees easing trade war to benefit Macau casinosprices of the casino concessionaires, whose licenses were set to expire from 2020 to 2022.

“The potential positive outcome as it relates to trade tensions between China and U.S. could boost sentiment and, thus, drive valuation multiples. We think these should remove overhang from concession renewal, even though there is no direct revenue/cost impact,” the Morgan Stanley note read.

For the last couple of months, both countries had threatened the raising of tariffs on imports from the other country by January 1, 2019, with U.S. President Donald Trump suggesting $200 billion worth of Chinese imports affected. A meeting with his Chinese counterpart Xi Jingping at the G20 event led to Trump tweeting, “President Xi and I have a very strong and personal relationship. He and I are the only two people that can bring about massive and very positive change, on trade and far beyond, between our two great Nations.” He also hinted at a “meaningful halt” to a “major and uncontrollable Arms Race” in collaboration with Xi and Russian President Vladimir Putin.

GGRAsia quoted the same Morgan Stanley document, in which the financial giant also said, “Given what appears to be an improving trade relationship between the U.S. and China, we see a greater likelihood the [Macau] concessions are renewed, at some cost.”

The Macau government is set to award a total of six concessions when these expire, and Morgan Stanley foresees the current concessionaires as likely to get a renewal. “While the Macau concession language notes that the licences must be retendered upon expiry, numerous conversations with Macau-focused lawyers, legislators, and operators have suggested that the incumbents are best positioned to continue to operate, unless the Chinese/Macau governments decide otherwise,” it stated.

Other positive factors considered by Morgan Stanley were above-expected November gaming revenue figures, and the opening of the Hong Kong-Zhuhai-Macau Bridge (HKZMB), seen to increase the inflow of visitors to the special administrative region.

While an earlier analysis by Union Gaming’s Grant Govertsen saw little impact of the HKZMB opening, Morgan Stanley said it had already helped with mass market performance.

November gross gaming revenue (GGR) for the whole of Macau was MOP25 billion ($3.1 billion), 8.5% higher year on year. Morgan Stanley, however, added, “Despite strength in GGR, it is important to note that adjusted mass revenue growth in the fourth quarter is tracking at less than 10 percent year-on-year, compared to 16 percent year-on-year in the third quarter, and 19 percent year-on-year in the first nine months of 2018.”

For the year up to the end of November, GGR was MOP276.4 billion, 17.7% higher than the same period last year.