Employment continues to be a concern for Macau casinos, analyst says

Macau’s tight labour market continues to be a concern for casinos operating in the territory, though longer-term the government is likely to find a compromise, Sterne Agee analyst David Bain wrote in a note.

The May unemployment rate came in at 1.7 percent, meaning that “if you are not working in Macau it’s because you don’t want to.” The situation is likely to get worse amid the new casino openings in coming years.

“While certain options have been presented internally within the Macau Government to relax certain labor restrictions - namely to allow for non-Macau residents to hold certain positions that can only currently be assumed by Macau residents, such as dealers - pushback from locals has prevented any true political progress to date,” he said.

However, the government is likely to eventually address the problem, as the situation risks draining staff away from other small businesses in Macau to the higher paying casinos, leading to a narrowing of options. This would run counter to the government’s goal to diversify the economy.

Meanwhile, Sterne Agee said the June gross gambling run rate through to June 29th was a drop of 6 percent, pulled down by the distraction of the World Cup.

Despite the slowdown in June GGR, which had been widely forecast, Deutsche Bank says the worst may be over for Macau casino stocks.

Share prices are down 24 percent from the peak in late January. The sector has de-rated from 18.0x to 13.2x twelve-month forward consensus EV/EBITDA, according to Deutsche estimates.

The German bank said historically stocks have rebounded once GGR hits bottom, and June is likely to be the bottom, it said.

 

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