Insight #1 – Macau casinos should recover from COVID-19 but are over-earning and face 2022 concession non-renewal risk

Macau gross gaming revenues recovered to just -70% YoY in 4Q20 vs -93% YoY in the prior quarter. So it looks like Macau casinos are on a steady recovery path. But the stocks themselves are already discounting a recovery - and more. Galaxy Entertainment is at an all-time high and Melco is back to pre-pandemic levels. I don’t think the long-term growth case is compelling either. In 2018 EBITDA per casino was about 2-4 times that of equivalent casinos in Las Vegas. It’s unclear why. Perhaps because of money laundering and evasion of China’s capital controls. Or the success of Macau’s casinos could simply be a result of China’s post-GFC credit boom and property bubble. But there is another reason to be skeptical about Macau casinos, and especially the American ones: their concessions expire on 26 June 2022. It’s possible that Macau’s government ex…