Macao stock valuations approaching pandemic lows as markets wait for first-half results

All Macao gaming stocks have registered negative returns this year with the six operators losing between a tenth and a third of their Hong Kong-listed valuations while the collective sector is down a fifth.

Neither the 7 percent year-to-date increase in gross gaming revenue (GGR) nor the continued momentum in tourist arrivals has sparked a meaningful share price recovery as experts anticipate a material slowdown in the second half due, in part, to last year’s higher base. Renewed curbs on cross-border flows and contracting retail sales have also weighed on risk sentiment while the sector has underperformed the broader Hong Kong equity market.

The slump in Macao’s gaming stocks reflects anticipation of weaker earnings amid higher operating expenses, explains Jeffrey Kiang, CLSA gaming analyst, speaking to The Bay.

Kiang, who cut his 2026 GGR outlook by 100 basis points to 4 percent in early June, suspects that headwinds could alleviate following the conclusion of the 39-day FIFA World Cup in mid- July, though he expects minimal positive surprises and another negative GGR reading this month as the six operators are set to publish their second-quarter numbers in the upcoming weeks.  

On Wednesday, Macao’s Gaming Inspection and Coordination Bureau reported June GGR at 18.5 billion patacas (US$2.3 billion), a 12 percent decrease from the same period a year ago, lower than consensus estimates and the first negative reading since January 2025. 

[See more: Macao’s gross gaming revenue hits 18.52 billion patacas in June, down 12.1 percent year-on-year]

Beyond near-term data, heightened competition for premium mass players is eroding operating leverage as fewer dollars are reaching the gaming floor. Amid softer earnings and continued marketing expenditure pushing up costs, the onus falls on quarterly market share to lift the bottom-line, increasing volatility at a time when gaming revenues could remain flat, or even contract further, during the summer months.

Measuring compensation risks 

Using traditional valuation benchmarks like enterprise value to earnings before interest, taxes, depreciation, and amortisation (EV/EBITDA), Macao gaming stocks are tracking close to their pandemic lows of 7.2x, based on Morgan Stanley estimates, implying that investors are paying comparable valuations for the sector when borders were effectively closed and tourism numbers had collapsed.  

Other metrics illustrate a similar message. Free-cash flow and dividend yields are higher than their long-term average and exceed pre-pandemic levels. However, despite the sector offering a forecasted free-cash flow yield of 9.5 percent, credit spreads relative to 10-year Treasuries remain narrow by historical standards, suggesting that investors are not adequately compensated for undertaking the incremental risk when compared to holding risk-free assets, analysts at the US bank note.

Without any emerging signs of easing competition, CLSA forecasts Macao’s capex spending to reach US$3.8 billion this year, an 81 percent increase from the US$2.1 billion spent in 2025. For 2027, projected capex will hover at US$3.7 billion before declining in 2028, weighing on free-cash flows over the next 18 months, Kiang predicts.

As the premium for cash continues to grow, yield spreads could remain under pressure due to rising energy and consumer prices, prompting investors to remain sidelined longer or until a more compelling entry point emerges.

This year, the Macao government is forecasting the cumulative 2026 GGR to reach 236 billion patacas (US$29.4 billion), up 3.5 percent in comparison to the official revised 2025 GGR prediction of 228 billion patacas (US$28.28 billion). Despite the projected growth, Macao’s gross gaming revenue for the whole of this year still falls short of the 292.5 billion patacas (US$36.28 billion) registered in pre-pandemic 2019.