New COVID Measures Put Off Macau Visitors

The mainland’s tourist demand during the National Day holiday is expected to ratchet up a notch, but Macau may not benefit.

Kate Lin 04.10.2021
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This weekend is the National Holiday weekend in Hong Kong. Based on tourism number forecasts, Morningstar analysts expect travel demand to rise by around 2% compared to 2020; however, this number is still only 80% of 2019 levels. Morningstar data show that Chinese trip-booking platform saw its domestic business regain a strong foothold in July, but the recovery has been significantly slowed through September. Imported COVID cases, including those that carry the Delta variant, have caused concerns for visitors planning cross-province trips. 

One of the popular destinations among domestic travellers is Macau, but stricter COVID control measures are expected to play a part in reducing travellers’ interest in a short trip to Macau for the October Golden Week.


Tighter Inbound Controls

Ahead of the holidays, Macau detected one imported and two new local COVID cases. Mass testing for all residents and visitors in the city followed. Tightened containment measures include a 24-hour negative COVID-19 test result for all departures, and compulsory quarantine measures for incoming persons. This time, unlike previous outbreaks, the Macanese government confirmed that it would not suspend the operation of casinos.

Jennifer Song, senior equity analyst, believes that mainland visitors planning a trip to Macau are concerned about quarantine requirements when they return home, and would rather visit mainland cities that do not require a quarantine in and out of the town. She thinks tourist traffic will reduce, regardless of whether the government wants to keep the casinos and resorts open for the week.

Therefore, Song retains the very high uncertainty rating for the six casino operators in the city. In addition, she maintained her fair value estimates for these operators, viewing them as undervalued.

“Judging from the previous success of the Macanese government in controlling an outbreak, the delayed recovery will possibly be resumed in the final months of 2021,” says Song. But this ultimately depends on the development of the global and China’s pandemic situations.


Recovery Path

Song believes the sentiment downturn over the near term has little to do with the sector’s long-term prospects.

Macau’s gaming revenue will be driven by pent-up demand from mainland China tourism, and China’s expanding prosperity.

Also, Hong Kong tourists may soon be allowed to cross the border and visit Macau. Song says: “The authorities’ conversation on the possibility and steps toward a re-opening of the Hong Kong-mainland border presents a positive move. The creation of a travel bubble with Hong Kong is on the horizon.”

According to her, the influx of Hong Kong visitors will help add 15-20% tourists to Macau based on the pre-COVID visitation figures. Coupled with the rollout of vaccinations, a meaningful recovery for casinos could arrive in 2022-23.


Industry Reforms

On a side note, investors should be vigilant on an impending reform that is believed to change the whole landscape of the gaming business in Macau.

The city’s administration has initiated a public consultation that closes by late October, seeking to revise gambling law, supervision and licenses. Last month, Morningstar assigned a trim in fair value estimates of the six casino operators, in a range between 22% and 45%, due to the uncertain outlook of industry rules. Also, operators with a U.S. background may be impacted more than the local peers as the Chinese government seeks a more direct supervision on the sector.

Song says Galaxy Entertainment (00027), an entertainment business arm under the conglomerate K. Wah Group, remains best positioned over the long term. “The company stands out with strong management and quality assets, and robust balance sheet and large landbank.” Meanwhile, SJM (00880) offers an attractive risk-reward profile. The opening of the firm’s first Cotai property Grand Lisboa Palace would lead to a solid market share gain and improved operating efficiency by transferring redundant labor to the new property over the long term.



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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Galaxy Entertainment Group Ltd38.20 HKD-1.55Rating
Melco Resorts and Entertainment Ltd ADR8.06 USD0.25Rating
MGM China Holdings Ltd14.22 HKD-0.56Rating
Sands China Ltd Shs Unitary 144A/Reg S19.00 HKD-0.63Rating
SJM Holdings Ltd2.91 HKD-1.69Rating
Wynn Macau Ltd7.26 HKD-1.63Rating

About Author

Kate Lin

Kate Lin  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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