New Macau leader deals casino hub a promising hand

Sands China

12/12/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own. Refiles to remove broken link.)
    By Katrina Hamlin
       HONG KONG, Dec 12 (Reuters Breakingviews) - Macau’s new
leader could bring better luck for casino operators. Improving
connections with mainland China is low-hanging fruit for
incoming chief executive Sam Hou Fai, a former judge who hails
from across the border in Zhongshan, Guangdong. Business at $22
billion Sands China  1928.HK , SJM  0880.HK  and peers will
benefit.
    The gambling hub’s $26 billion gross gaming revenue in the
first 11 months of the year is only around three quarters of
2018 volumes in that period, according to official data. Thanks
to Beijing's corruption crackdown, VIP visitors are no longer
driving growth; they now contribute about a quarter of the top
line, compared to half five years ago. That has weighed on
valuations: The six licensed operators’ enterprises trade on
average around 9 times expected 2025 EBITDA, per Visible Alpha,
versus mid-teens levels before Covid-19 struck.
    Attracting more Chinese middle-class gamblers and tourists
instead could drive a turnaround. Hoteliers are already
aggressively courting this cohort with attractions including
K-pop shows and NBA games. The problem is, Macau only has 45,000
hotel rooms, about a quarter of Las Vegas' tally. They’re
jam-packed, averaging 85% occupancy in the third quarter of
2024, and 95% during a week-long holiday in October.
    Sam officially takes the role of chief executive on the 25th
anniversary of Macau's return to Chinese rule this month. He can
look to neighboring Hengqin island, a special economic zone
across the border in Guangdong province that's roughly three
times Macau’s size. Casino operator Galaxy Entertainment
 0027.HK  is among those who see potential for visitors to stay
there in future, and was early to secure the right to develop a
site over a decade ago. But progress has stalled on cross-border
logistical and bureaucratic challenges.
    This year, a new train line and a special multiple entry
visa for tour groups started to ease movement between Hengqin
and the former colony. If Sam successfully lobbies for a similar
scheme for individuals, as well better critical infrastructure
and transport on Hengqin itself, he could effectively put 10,000
hotel rooms less than an hour’s journey from the Cotai Strip,
Macau’s main drag – and more if stakeholders like Galaxy,
boasting $3.2 billion net cash as of June, invest too.
    As Macau marks a quarter of a century of Chinese rule, its
fortunes could turn.
    Follow @KatrinaHamlin on X
     
    CONTEXT NEWS
    Former judge Sam Hou Fai will begin his five-year tenure as
the chief executive of China's special administrative region
Macau on Dec. 20, following his election in October. Sam was
born in May 1962 in Zhongshan city in the southern Chinese
province of Guangdong.
    The date Dec. 20, 2024 will also mark the 25th anniversary
of Macau’s return to Chinese rule, following more than 400 years
as a Portuguese colony.

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Graphic: Macau has yet to regain pre-2020 lustre    https://reut.rs/4fcyWHs
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ katrina.hamlin@thomsonreuters.com; Reuters
Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))