Momentum rewards those who follow the trend, right up until the moment it turns. Macau’s casinos have been a case in point. High rates of growth, strong cash flows and generous payouts of 100 per cent (and more) were catnip to the market for years. Dividend yields of over 6 per cent were supplemented by special dividends from Sands China and SJM Holdings. Share prices doubled in 2013.
Then sentiment soured, as China’s crackdown on corruption last year curtailed VIP play and crimped sales. Share prices dropped more than a third for the year. Last week, official figures confirmed what share prices foretold. Annual gaming revenues fell for the first time on record.
The sector is still not wildly cheap. Shares in SJM Holdings, the cheapest, trade at 10 times 2015 earnings per share, which are forecasted to contract 6 per cent. Analysts have slashed forecasts by between one-fifth (MGM China) and one-half (Melco Crown) from the 2014 second-quarter peak. Third-quarter numbers were nearly universally weak, bearing out the pessimism. Still, margins at MGM China and Wynn Macau widened and balance sheets are mostly healthy.