Melco Resorts Analysis – January 2022

Melco Resorts & Entertainment Limited (Symbol:MLCO) is a casino operator with a large majority of their revenue coming from Macau, a special administrative region in China. News from last week coming out of the Macau government clarified news around their gaming license (which is due to expire June 2022), though much remains unclear. According to Reuters “The government said all existing or potential operators need to apply through a new tender process. It did not detail when operators will have to bid or whether the current licence term will be extended, according to a notice posted on its website.” The Macau government is also saying operators will need to increase the proportion of local-ownership from 10% to 15%.

The Chinese government is trying to crackdown on the gambling industry. Officials are worried that people are swapping out their money for other currencies. They are also worried about the dangerous effects of gambling and would like Macau to be more entertainment and resort-focused. The central government has already cracked down on technology companies and property developers.

China also has a zero-covid policy, where outbreaks are quickly followed by quarantines and city shutdowns. If more transmissible variants pop up, it could also lead to a shutdown of Macau.

Recent turbulence in the property-development sector has prompted fears that China’s economy will crash. Estimates of how much building contributes to GDP go up to 25%. A majority of Chinese people also have their households savings in properties.

I believe that this news announced last week along with the other factors mentioned is going to negatively affect Melco’s revenues and share price in the next year.

Other companies with some exposure to Macau are Wynn Resorts (Symbol:WYNN) and Las Vegas Sands (Symbol:LVS)

I have no position in any of the stocks mentioned in this article.

References:
https://www.reuters.com/business/macau-limits-new-casino-licences-6-last-up-10-years-2022-01-14/
https://www.thestreet.com/markets/las-vegas-sands-wynn-resorts-surge-as-macau-clarifies-casino-rules
https://www.bloombergquint.com/global-economics/macau-plans-maximum-six-casino-licenses-of-up-to-13-years

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