When it comes to the prospects for casino
companies operating in China, options traders are betting
against a quick recovery.
One-month contracts to sell shares of Wynn Resorts Ltd. (WYNN) and Las Vegas Sands Corp. (LVS) cost the..............................
most since 2008 relative to bullish ones, data compiled by Bloomberg show. Bearish options on MGM Resorts International (MGM) are near their more expensive levels in almost six years, relative to calls. All three companies operate in Macau, China’s gambling center.
Each stock lost more than 25 percent in the past year as Chinese President Xi Jinping seeks to battle illicit money channeled through Macau’s casinos. The crackdown is scaring away high rollers. Gambling revenue in the former Portuguese enclave fell in 2014 for the first time, ending a decade of growth that transformed it into a betting center bigger than the Las Vegas Strip.
“Things are not going to rebound in 2015, it’s going to be a tough first half of the year,” Timothy Chen, an analyst at Rhino Trading Partners LLC in New York, said by phone. “Macau has been a conduit for money to leave the country. The landscape is changing and no one knows where this could go.”
Gambling revenue in Macau declined 2.6 percent last year, and Barclays Plc projected in a Jan. 16 note that sales will drop 8 percent in 2015. Macau is the only place in China where casinos are legal and is viewed as a conduit for officials and businessmen to bypass currency controls and send money out of the mainland to safer havens.
MGM, the largest owner of casinos on the Las Vegas Strip, reported an unexpected loss in the third quarter as revenue from the U.S. also fell. Analysts estimate earnings will slide 42 percent in the fourth quarter, according to the average projection compiled by Bloomberg. The company gets about 33 percent of its sales from Macau.
“The companies that have diversified into China are going to be subject to more skepticism,” Jared Woodard, the New York-based senior equity derivatives strategist at BGC Partners LP, said in a phone interview. “That story keeps popping up, and it seems consistent with the overall policy the president in China has tried to pursue.”
The biggest earnings cuts for the Macau gaming sector are over, Kenneth Fong, an analyst at Credit Suisse Group AG in New York, wrote in a Jan. 8 note to clients. On Jan. 9, Morgan Stanley raised its rating on Wynn to overweight from the equivalent of a hold.
Still, investors are betting that more stock declines await. Seven of the 10 most-owned options on MGM were bearish, while Sands had eight and Wynn had six, data compiled by Bloomberg show.
Bearish one-month options on Wynn shares were 7.7 points more expensive than contracts betting on a 10 percent rally, compared with a one-year average of 4.3 points. On Jan. 2, the price relationship known as skew reached 14, the highest in more than six years, according to data compiled by Bloomberg. It was at 9.3 points yesterday for Sands, and at 11.8 points for MGM.
“People still buy into the long-term idea that if the casinos increase their penetration into the Chinese market, there’s a lot of incremental money there,” Brian Miller, a gaming and lodging analyst for Bloomberg Intelligence, said in a phone interview. “The risk is in the short term: there’s a lot of supply opening up and the question is if demand will come back to match it.”
To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net
To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net Cecile Vannucci
One-month contracts to sell shares of Wynn Resorts Ltd. (WYNN) and Las Vegas Sands Corp. (LVS) cost the..............................
most since 2008 relative to bullish ones, data compiled by Bloomberg show. Bearish options on MGM Resorts International (MGM) are near their more expensive levels in almost six years, relative to calls. All three companies operate in Macau, China’s gambling center.
Each stock lost more than 25 percent in the past year as Chinese President Xi Jinping seeks to battle illicit money channeled through Macau’s casinos. The crackdown is scaring away high rollers. Gambling revenue in the former Portuguese enclave fell in 2014 for the first time, ending a decade of growth that transformed it into a betting center bigger than the Las Vegas Strip.
“Things are not going to rebound in 2015, it’s going to be a tough first half of the year,” Timothy Chen, an analyst at Rhino Trading Partners LLC in New York, said by phone. “Macau has been a conduit for money to leave the country. The landscape is changing and no one knows where this could go.”
Gambling revenue in Macau declined 2.6 percent last year, and Barclays Plc projected in a Jan. 16 note that sales will drop 8 percent in 2015. Macau is the only place in China where casinos are legal and is viewed as a conduit for officials and businessmen to bypass currency controls and send money out of the mainland to safer havens.
Revenue Loss
Wynn’s Macau sales fell 5.6 percent in the third quarter, while they dropped for Sands both in the enclave and in Singapore. The companies get more than 65 percent of their revenue from Macau, data compiled by Bloomberg show.MGM, the largest owner of casinos on the Las Vegas Strip, reported an unexpected loss in the third quarter as revenue from the U.S. also fell. Analysts estimate earnings will slide 42 percent in the fourth quarter, according to the average projection compiled by Bloomberg. The company gets about 33 percent of its sales from Macau.
“The companies that have diversified into China are going to be subject to more skepticism,” Jared Woodard, the New York-based senior equity derivatives strategist at BGC Partners LP, said in a phone interview. “That story keeps popping up, and it seems consistent with the overall policy the president in China has tried to pursue.”
The biggest earnings cuts for the Macau gaming sector are over, Kenneth Fong, an analyst at Credit Suisse Group AG in New York, wrote in a Jan. 8 note to clients. On Jan. 9, Morgan Stanley raised its rating on Wynn to overweight from the equivalent of a hold.
New Resorts
Companies will build new resorts in Macau and gross gaming revenue will climb 13 percent in 2016, according to Fong. Three casino operators are planning to open new resorts costing over $6 billion in the second half of 2015, according to an analysis by Bloomberg Intelligence.Still, investors are betting that more stock declines await. Seven of the 10 most-owned options on MGM were bearish, while Sands had eight and Wynn had six, data compiled by Bloomberg show.
Bearish one-month options on Wynn shares were 7.7 points more expensive than contracts betting on a 10 percent rally, compared with a one-year average of 4.3 points. On Jan. 2, the price relationship known as skew reached 14, the highest in more than six years, according to data compiled by Bloomberg. It was at 9.3 points yesterday for Sands, and at 11.8 points for MGM.
“People still buy into the long-term idea that if the casinos increase their penetration into the Chinese market, there’s a lot of incremental money there,” Brian Miller, a gaming and lodging analyst for Bloomberg Intelligence, said in a phone interview. “The risk is in the short term: there’s a lot of supply opening up and the question is if demand will come back to match it.”
To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net
To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net Cecile Vannucci
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