Casino stocks with exposure to Macau are trading higher after the only region in China where gambling is permitted reported April gross gaming revenue (GGR) up 16% year-over-year. GGR has now grown nine straight months and is up 13.8% year-to-date. GGR peaked in 2014 and then fell 34% in 2015 and 3.3% last year after the Chinese government cracked down on money laundering and corruption in Macau, which crushed the VIP segment of the gaming market.
Wynn, Sands and MGM all reported first quarter results last week. Investors were encouraged by the continued improvement in Macau.
Wynn CEO Steve Wynn said there was a resurgence in the luxury market as the cycle bounces back. He does not foresee anymore government intervention and is encouraged by the limited supply growth going forward. Mr. Wynn also said strong results were not driven by credit extension, which is a healthy sign.
Macau accounts for more than two-thirds of Wynn Resorts' (WYNN) adjusted EBITDA -- the most common measure of profit for casinos/lodging stocks. Last year, Macau accounted for 85% of Melco Resorts' (MLCO) adjusted EBITDA, 54% for Las Vegas Sands (LVS) and 17% for MGM (MGM).
All four stocks have risen with the improvement in the Macau gaming market. Melco will report Q1 results on Thursday, May 4. May GGR should be released on June 1.
WYNN and LVS trade at just over 12x EV/EBITDA while MGM and MLCO trade at just under 12x.