Signs of fatigue could hit HK casinos in the short term – #SaxoStrats
Casino stocks have done well outperforming the market since early 2016 and the Hong Kong listed have done especially well with Galaxy Entertainment up 160% since early 2016 as headwinds from regulatory crackdowns on gambling and corruption have eased.
Management and risk description
The biggest risks to our sell idea on Galaxy Entertainment are better Chinese macro fundamentals and better than expected Q3 earnings and outlook when the company releases Q3 results on October 26th. Better mainland foot traffic over the coming months on a y/y comparable basis could also restart sentiment and take Hong Kong casino stocks higher. Another risk is that investors will not care about the latest weakness and focus on the long-term growth. Invested capital has grown from HKD 14.4bn to HKD 57.9bn since early 2009 translating into 17.4% annualised growth. This is also the main reason why this trade is structured to be short-term as the long-term potential will likely take the stock higher over time.
Galaxy Entertainment weekly share price
Entry: the position is entered on the market open in Hong Kong tomorrow
Stop: we are placing our stop at 57.25 so that we exit our trade should the stock make new record highs.
Target: we are targeting the 45 level which was the key support level during the early July selloff and would likely be the natural anchoring point with the 200-day moving average arriving at this area over the coming weeks.
Time horizon: we indicate short-term here but it could extend to medium term if the expected price adjustment takes longer.
— Edited by Clare MacCarthy
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