Casino stocks have mixed day after Crown arrests

Gambling stocks around Asia are putting in a mixed performance following the arrest by Chinese authorities of 18 employees of Crown Resorts, the Australian resorts and gaming company.

Crown shares fell 13.9 per cent on Monday, their biggest one-day drop since listing in 2007, after reports emerged at the weekend China had detained 18 of the company’s staff, including three executives, in a move believed to be related to a crackdown on the practices used to lure high rollers on the mainland.

Today, Crown was in mild recovery mode, up 1.9 per cent in late trade in Sydney. Star Entertainment Group, whose main asset is a casino in Sydney, was down 0.4 per cent.

Larry Gandler, a Melbourne-based analyst at Credit Suisse said that separate to the regulatory issues are those related to the marketplace, namely “how will players respond to future invitations to Australia resorts and how junkets will promote Australia as a destination?”

Mr Gandler said that with more clarity on Crown’s problems, “we may see changes in the way Australian casinos adjust their operations in China.”

Nick Markiewicz at Morgan Stanley in Sydney says that reflecting on the arrest last year of 13 South Korean casino managers, who worked for Grand Korea Leisure and Paradise Co, the companies suffered an “incremental” fall in VIP revenues from China, but their share prices saw a sharp derating of their price/earnings multiples.

In the case of Star Entertainment Group, Mr Markiewicz, points out VIP revenues represent a much smaller portion of group revenues than for the Korean operators at the time. “As a result, for Australian casino operators, we think the earnings/share prices risk will be more manageable than in the South Korean experience” and for Star “VIP risk looks far more manageable, with a bear case outcome already priced in.”

But there was even more shuffling going on in the Australian gaming landscape with Tabcorp and Tatts Group entering trading halts following media reports the pair were revisiting merger discussions. The pair held brief talks last year about a A$10bn ($7.6bn) tie-up, but were unable to agree on an appropriate merger ratio.

Macau-focused casino and resort operators listed on the Hong Kong Stock Exchange were also recovering from declines on Monday, when the Crown news sent a shiver through their share prices.

Galaxy Entertainment group was up 2.6 per cent following Monday’s 4.3 per cent drop, while Sands China had clawed back almost a third of yesterday’s 3.3 per cent fall. The pair are members of the benchmark Hang Seng index.

Also listed in Hong Kong, MGM China Holdings and Wynn Macau were the only two stocks to recoup Monday’s losses. The former was up 4 per cent after a 1.7 per cent fall, while the latter added 2.8 per cent today after giving up 2.7 per cent on Monday. Meanwhile, SJM Holdings was up 1.5 per cent today, having retreated 3.2 per cent on Monday.

Last year, 13 South Korean casino managers were arrested by Chinese authorities for allegedly enticing people from China to gamble abroad. The managers worked for Grand Korea Leisure and Paradise Co, which are both listed on the Kospi. Although the two companies have pared their exposure to China, their shares were lower in Seoul today and yesterday.

Australia’s S&P/ASX 200 closed 0.5 per cent higher, while Hong Kong’s Hang Seng was up 1 per cent in afternoon trade and South Korea’s Kospi added 0.2 per cent.