Macau Is Back, Baby. But Choose Your Stock Bets Wisely.

January gambling revenue was up 83% from a year earlier, to its highest level in three years. The timing of the mainland’s weeklong Lunar New Year holiday—it fell in January, instead of in February like last year—flatters the 2023 growth figure a little bit. But the recovery since China abruptly began scrapping its strict Covid policies in December is real: January revenue was back up to around half of its prepandemic level.

Moreover, the revenue rebound is outpacing the return of tourists themselves: Visitor arrivals during the holiday were still less than 40% of 2019 levels.

That suggests that high rollers are among the first to return. Citi provided some interesting color on such “whales” after the bank’s analysts visited the casinos: At a baccarat table, a player wagered 725,000 Hong Kong dollars, equivalent to $92,000, in a single bet. Another gambler had HK$6 million of chips stacked in front of him. More-casual gamblers will likely stream into the city in the coming months as the exit wave of infections in China starts to ebb. 

And the casinos will probably need to rely more on such leisure travelers than on high rollers, compared with the prepandemic days. About two weeks ago, Alvin Chau was sentenced to 18 years in prison for illegal gambling operations and organized crime. He was chairman of Suncity, the largest of Macau’s junket companies, which recruit so-called VIP gamblers, mostly high rollers from mainland China, and lend them money to gamble. Another junket boss was also arrested last year.

VIP gamblers used to generate more than 70% of Macau’s total gambling revenue, but their importance was already declining—in 2019, they accounted for less than half. Their significance will likely drop even further: Macau wants to reduce its reliance on gambling while China wants to stop capital outflows through illicit channels. Macau casinos have been pushing to attract “premium mass” customers. The definition varies from casino to casino, but usually such gamblers make bigger wagers than normal visitors—without needing credit from casinos themselves, or from junkets. Tighter capital controls in China, however, may still affect such high-stake gamblers’ ability to splash cash.

Macau casino operators also need to contend with higher debt loads than before the pandemic. Profits will start rebounding this year, but the extra debt burden will chip away at that to an extent.

On average, Macau casino operators’ stocks have more than doubled in value in the past three months, with some justification. But as share prices start to price in the recovery, investors should focus on companies with stronger financials and an edge in attracting mass-market customers, like Galaxy Entertainment or Sands China.

Macau will finally draw some winning hands this year, but the takings won’t be distributed equally. Investors should pick operators that can best navigate the new, mass-market-focused landscape.

Write to Jacky Wong at jacky.wong@wsj.com