Casino stocks had one of their best days in months on Friday after Macau’s government amended its gaming regulations.
The new regulations allow for six casino licenses to operate within the city, but their duration was slashed from 20 years down to 10. The government will also allow for up to three years of extensions.
Macau’s Secretary for Administration and Justice Cheong Weng-chon told the South China Morning Post that the new regulations are meant to help the city diversify its most economically productive industry.
The stocks of Las Vegas Sands and Wynn Resorts, two casinos that hold licenses in Macau, were up more than 8% each on Friday following the announcement.
Wynn Resorts was up 8.3% to $91.30 by 17:30 UTC while Las Vegas Sands was up 13.1% to $42.60 per share.
According to the South China Morning Post, the new regulations are the result of a 45-day public comment period in which the government solicited feedback on several questions concerning the casinos’ business practices.
The Post said most respondents were in favor of tightening licensing regulations for casinos, though the government said it will ease the “operating environment” for the businesses.
The regulations still need to be approved by the legislature, but analysts say it is nearly guaranteed to pass as lawmakers rarely vote against government proposals.
Macau has broad but limited autonomy from China in most of its governing and economic activities.
Stop the bleeding
The new regulations also stopped some of the bleeding that came from casino stocks over the past 12 months.
For example, the stock of Las Vegas Sands has declined by nearly 20% over the last calendar year and Wynn Resorts has tumbled by nearly 14%.
Another factor that could bolster future results for casino stocks is that analysts at investment bank J.P. Morgan Chase upgraded their outlook for several casinos on Friday.
In a note to investors, analyst Joseph Greff described the stocks' risk-reward calculation as “favourable” considering the tumultuous year they had in 2021.
Greff added that many of the risks for these stocks are already priced in “after a year of incremental regulatory concerns (adverse licensing renewal terms, the likely death of the junket VIP business) and the sell-side cutting estimates.”
A lot still hinges on travel
Despite the fundamental upside for these stocks, Greff added that a lot still hinges on travel increasing to China and Macau.
The winter Olympics in Beijing are scheduled to begin on 4 February, and China recently imposed new travel restrictions that prohibit entry for people who travel to the country through a third point.
Meanwhile, China is also beginning additional Covid-19 testing for students in international schools.