Why Two Fund Managers Still Believe in Macau Casino Stocks (FE Trustnet)

FE Trustnet recently had an article detailing the exposure of various British funds to the Macau casino gaming market with Omar Negyal, the co-manager of the £174m JPM Emerging Markets Income fund which has 2% of its portfolio in Wynn Macau (OTCMKTS: WYNMF; OTCMKTS: WYNMY), having this to say:

“Macau stocks have been a drag on performance in 2014, after a strong 2013. A good, long-term play on Chinese consumer spending, the stocks had run up during 2013 and so we slightly reduced on valuation grounds, however, hindsight shows the valuation correction has been much more severe than we anticipated”

“The dividend growth story remains intact and with 2014 dividend yields ranging from 4.5 per cent to 5.5 per cent for our Macau names, the yields certainly look healthy on their own. The growth thesis is clearly being tested at the moment with gaming revenues declining on a year-on-year basis in the past few months but our medium-term growth numbers are still supportive. So we remain positive overall.”

Regarding Wynn Macau, there are signs the fundamentals are improving:

“One other detail to note is that Wynn Macau announced its interim dividend during August: they raised the interim by a decent amount year on year. As an ordinary dividend policy was only established last year, this is only a little step but we still take it overall as a positive sign in terms of management intent.”

Meanwhile, Jason Pidcock, who manages the  £250m Newton Emerging Income fund which has 2.76% in the Sands China Ltd (OTCMKTS: SCHYY) and who is also deputy manager of the £424m Newton Oriental fund which has 4.07% in Sands China, had this to say:

“The market gets spooked every now and then by short-term bits of news flow, but actually they’re pretty steady operators in terms of year-on-year revenue growth, profits growth, very good balance sheets, very good dividend policy and dividend payments.”

It remains a very closed market. There are six licensed operators in Macau. There are very high barriers to entry. New supply coming on will grow profitability. In the case of Wynn Macau it is 2016 where we expect a big pickup in profits due to increased capacity.”

“They have underperformed recently after doing very well last year. But I think now valuations look good again, yields look good. They’re still our preferred way to play consumption growth from China.”

To read the whole article, The hidden gamble that may be lurking in your emerging markets fund, go to the website of FE Trustnet. In addition, check out our Macau ADR list.

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