Are Galaxy Entertainment and MGM China a winning bet?

WHICH ECONOMY contracted most sharply last year? That dubious honour almost certainly belongs to Macau, a former Portuguese colony that is now part of China. On March 5th the autonomous region’s statistical agency is expected to announce that GDP fell by at least half from 2019. Unsurprising, perhaps, given that the covid-19 pandemic has dealt a blow to Macau’s sole engine of growth: casinos. Gross gaming revenue in Macau, the only place in China where casinos are legal, plummeted from $36bn in 2019 to $7.5bn last year. The first two months of 2021 brought little respite.
Yet despite collapsing revenues and heavy pre-tax losses, share prices of Macau’s six casino operators have held up remarkably well (see chart). Three of them are worth more than they were before the pandemic. Recently, after reporting that annual revenues had fallen by three-quarters, the biggest, Galaxy Entertainment, saw its market value swell to $42bn. Investors also reacted with a collective shrug when MGM China, a listed subsidiary of Las Vegas-based MGM Resorts International, disclosed a similar drop in its top line.

Why are investors feeling lucky? First, Macau expects a speedy recovery in visitors from mainland China, who account for seven in ten non-Macanese punters. For much of 2020 virus-induced travel restrictions stemmed their flow. Last…
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