Asia links 25 Feb 2021: Macau casinos, vaccine roll-out, Indonesian property

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 extends their concessions for another 5 years. They could also renew them at less attractive terms. Or potentially award these concessions to domestic Chinese companies instead. It’s a major risk I don’t think the market is fully taking into account, especially when it comes to MGM China, Wynn Macau and Sands China.

Insight #2 – Singapore is ahead in vaccinating its population and Japan & Korea are not far behind

Nikkei published a neat table showing the progress countries have achieved in terms of vaccinations per capita. In Asia, Singapore is in the lead with 6 vaccines per 100 individuals, followed by Mainland China, Sri Lanka and Bangladesh. Mainland China has given out 40 million shots so far, though it should be noted that Sinovac and Sinopharm vaccines have lower efficacy rates and the government is not letting elderly take its vaccines. Korea is planning to start vaccinating its population this week with 10 million vaccinations planned by July. Japan’s roll-out began last week and the government is still hoping for a completion of the program before Tokyo Olympics in July / August. Taiwan claims Beijing has used its influence to stop BioNTech from supplying the country with its vaccines, but apparently discussions are still ongoing. Thailand, Malaysia and Indonesia are all in the process of starting their vaccination processes, in some cases with forceful measures and relying mostly on Chinese vaccines. It looks like developed Asian countries will come out ahead in the vaccination race, whereas poorer countries such as Indonesia and India will have to rely more on achieving herd immunity.

Insight #3 – New policies are likely to be highly stimulative for the Indonesian property market

Indonesia just cut the withholding tax for foreigners from 20% to 10%. In other news, Bank Indonesia relaxed LTV regulation for mortgages, making it possible to borrow up to 100% for first and subsequent homes (previously 85-90% for second and subsequent homes). Another law could make it possible for foreigners to buy - or at least build - a house in Indonesia. And then of course, Bank Indonesia has cut the benchmark interest rate to 3.5% from 6.0% in 2019. Combined with commodity prices flying and the economy recovering from COVID-19, I believe the Indonesian property market will do very well in 2021. It’s a historically underpenetrated market with the number of housing units built per capita and year roughly 1/4 that of China. And modern commodity housing is very rare outside of major cities. The key beneficiaries of a recovering housing market include Pakuwon, Bumi Serpong, Ciputra and Summarecon. Just be aware that most of these developers are highly leveraged.

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Chart of the week – GMO thinks emerging market value stocks will be the only asset class that will provide positive return over the next 7 years

Source: Grantham, Mayo, Van Otterloo

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