Posted on: October 10, 2024, 08:19h.
Last updated on: October 10, 2024, 08:19h.
Late last month, Macau casino stocks surged after the People’s Bank of China (PBOC) cut interest rates and as Beijing announced a new round of stimulus measures targeting select segments of the Chinese population.
Earlier this week, those same gaming equities along with other Chinese stocks retreated after the National Development and Reform Commission (NDRC) failed deliver news about fresh stimulus, disappointing market participants in the process. However, some analysts believe it’s just a matter of time before Beijing unveils more cash assistance to citizens, which could boost Macau casino stocks.
In a new report Nomura analysts Ting Lu, Jing Wang, and Harrington Zhang pointed out that it’s not in the NDRC’s jurisdiction to announce stimulus plans and the subsequent sell-off by Chinese stocks was arguably healthy.
The corrections in stock markets may not be a bad thing as, in our view, preventing a stock mania and crash is a precondition to successfully jump-start China’s economy,” observed the analysts.
The analysts added China’s Finance Ministry is holding a press event on Oct. 12 at which more economic incentives could be announced.
Why Stimulus Matters to Macau Casino Stocks
The first batch of stimulus measures announced by Beijing propelled Macau gaming equities, but there are other reasons the group could benefit from additional incentives.
“Much of this incoming fiscal stimulus will likely be used solely to fill the fiscal gap faced by local governments. We believe the content of stimulus matters more than its size, as Beijing will have to clean up the mess created by the housing crisis and revamp its fiscal system, as local governments might no longer be able to collect massive revenue from land sale,” added the Nomura analysts.
Relevant to the Macau gaming landscape and the Chinese economy at large is the point that many market observers believe Beijing needs to do more in terms of distributing cash to citizens and that the initial payouts need to be first, not final steps. Further stimulus could arrive at a time when Macau stocks, including Wynn Macau parent Wynn Resorts (NASDAQ: WYNN) are deeply discounted.
“WYNN’s valuation is also attractive and trades below its historical averages at around 8.5x forward EBITDA estimates, which we believe minimizes the risk to the downside in the event that growth for the global economy slows,” wrote CFRA analyst Zachary Warring in a note.
Next Round of Stimulus Could Be Significant
Should Beijing follow up on the September economic incentive program, it’s likely to be larger than what was announced last month. Nomura estimates it could be as high as $283 billion, perhaps more.
“The actual stimulus would likely be larger than that, as Beijing may tap funding from the People’s Bank of China and the three policy banks to address the debt overhang, especially as it relates to the delayed delivery of pre-sold homes in the property sector,” according to the analysts.
Should cash flow directly into the hands of Chinese middle- and upper-middle-class citizens, that could be a boon for Macau casino stocks.