By Yi Wei Wong
Hong Kong-listed casino stocks slid further on Wednesday after major junket operator Suncity Group Holdings Ltd. shut VIP rooms across Macau, leading some analysts to cut revenue forecasts and longer-term outlook in the Asian gaming hub.
Wynn Macau Ltd. was 7.7% lower in afternoon trading, extending its decline this week to 19%. Galaxy Entertainment Group Ltd. was down 3.3%, Melco International Development Ltd. was off by 1.4%, SJM Holdings Ltd. was 3.8% lower and Sands China Ltd. had lost 3.9%.
The declines come as Suncity closed VIP rooms at several of its casinos in the city on Wednesday, people with knowledge of the matter told The Wall Street Journal.
Suncity sought a trading halt in the morning--its second of the week--saying it might make an announcement related to its VIP operations.
Wynn Macau could be the most affected by the tumult in the junket business, Morgan Stanley said in a note. The investment bank pointed out that Wynn has the biggest slice of the VIP market among its peers, with a roughly 21% share. That leaves its earnings--before interest, depreciation and amortization--most exposed to a downturn, Morgan Stanley says. Shares in the company, which is operated by international developer Wynn Resorts Ltd., have dropped more than 50% so far this year.
Wednesday's slides extend a broad selloff in casino shares this week after the arrest of the head of Suncity, Alvin Chau, rattled investors. Chinese authorities have alleged that Mr. Chau was involved in organizing cross-border gambling activities for Chinese customers. Gambling is permitted in Macau but illegal in mainland China. Mr. Chau and 10 others were detained for questioning by the Macau government over the weekend.
Suncity shares slumped 48% upon the resumption of trading Tuesday.
The arrest of Mr. Chau "should send a chill down the spine of any and all junkets," JP Morgan said in a research note. The investment bank expects VIP sector revenue to contract 30%-50% in the coming weeks, though the impact might not be too serious, given that VIP gambling has been on the decline and accounted for less than 40% of total gross gaming revenue in Macau in 2019. It has a neutral rating on the sector.
Ben Lee, founder of Macau-based gaming consultancy IGamiX, said the crackdown could also affect casino employees if workers come under scrutiny for promoting gambling in China.
"The casino's own marketing people could now potentially be caught in the same net as the junkets for inciting mainlanders to gamble," which could affect the premium mass segment if wealthy Chinese customers are deterred from traveling to Macau, he said.
"What used to be tolerated will no longer be," Mr. Lee added, saying that the scrutiny signals that casinos will increasingly have to look beyond China for clients. "The casino operators can no longer rely on China for gaming growth."
Write to Yi Wei Wong at email@example.com
(END) Dow Jones Newswires