Hainan Stocks, Lottery Shares Soar on Xi's Gift to Resort Island

(Bloomberg) -- Investors snapped up any stocks attached to Hainan, seeking to capitalize on Chinese President Xi Jinping’s efforts to boost the economy of the island resort.

Lottery, travel and infrastructure stocks were among the biggest gainers in Shanghai and Hong Kong on Monday, after China unveiled measures over the weekend to transform the island popularly known as "China’s Hawaii." The initiatives, which coincided with the 30th anniversary of Hainan as a special economic zone, ranged from a fund to help turn the province into a free trade port, prioritizing tourism to supporting the development of horse racing and sports lotteries.

Read more: Gadfly column on Hainan

Here are some businesses that stand to win or lose from the move.

Property, Resort Developments Will Finally Pay Off

Hainan’s property tycoons have poured billions of dollars into luxury resorts, theme parks and convention space but many are far from fully utilized. With the State Council citing a movie festival and an international merchandise fair as events that Hainan should organize, developers like Antaeus Group, whose $1.6 billion Mangrove Tree resorts were specifically designed for such large-scale events, may see their investments pay off. Here are some other developers that stand to benefit.

Lawton Development Co., a Hainan-based company involved in hotels and building renovations, was among the biggest winners on Monday, as its shares climbed to the daily limit of 10 percent in Shanghai trading.

MGM Resorts International The casino operator opened a Hainan hotel, MGM Grand Sanya, in 2012 and plans at least two more with joint venture partner Diaoyutai State Guesthouse 
Fosun International Its $1.6 billion Atlantis resort, which boasts underwater hotel suites and a water park, is due to open in May 
Phoenix Island The luxury resort, built on an artificial archipelago, has a cruise ship terminal and high-end timeshare apartments 
China Evergrande Group China’s third-largest developer is building another artificial archipelago off Hainan’s northwest coast, which will house convention centers, theme parks and malls

Tourism Firms, Duty-Free Shops Set for Boom

Hainan has so far failed to become a popular international tourist destination like Macau or Bali. Of the 67 million visitors that trekked to the island last year, a little over a million were from overseas. The new policies will give a needed jolt to the $13 billion tourism industry, with domestic operators like Tuniu Corp., which is linked to Hainan’s HNA Tourism Group, getting a boost.

Duty-free shops are also likely to sprout across the island, with state-owned China Duty Free Group Co. enjoying an incumbent advantage over new rivals.

Hong Kong retail sales, having rebounded from a two-year slump, may be at risk if Chinese families find it more attractive to vacation and shop in Hainan. Luxury brands such as LVMH Moet Hennessy Louis Vuitton SE and Kering SA may need to shift strategies to tap into the duty-free market in Hainan.

“It is inevitable that Chinese shoppers will divert purchases of pricier items from Hong Kong to Hainan,” said Bloomberg Intelligence analyst Catherine Lim. “This is bound to hurt Hong Kong retail sales going forward.”

Macau Casino Operators to Assess Risks

Any shift in China’s approach toward gambling could end up threatening the $33 billion casino industry in Macau -- the world’s largest gaming center with revenues five times that of Las Vegas -- as well as other casino hubs in the region.

Macau has been trying to attract Chinese tourists and families, while gaming operators from countries like Vietnam and Australia are building casino resorts that target Chinese. Gaming in Hainan would divert the torrent of gambling-loving Chinese away from these rival hubs, while limiting capital outflow and ensuring gaming revenue stays in the mainland economy.

While foreign operators including Las Vegas Sands Corp. and Wynn Resorts Ltd. get the bulk of gambling earnings in Macau, Hainan could favor local developers and operators to dovetail with Xi’s emphasis on a resurgent China taking a more prominent position on the world stage.

Casino stocks slumped after a rally last week, with an index of Macau gaming stocks dropping as much as 2.2 percent, with Wynn Macau Ltd. and Galaxy Entertainment Group Ltd. falling more than 3 percent. Shares of lottery companies gained, with RexLot Holdings Ltd. soaring as much as 29 percent in Hong Kong trading.

Relief for HNA Group

The plan will come as relief for HNA Group, the embattled conglomerate that grew out of Hainan and has been selling assets around the world as it faces a cash crunch. Its network of companies, ranging from airlines to logistics operators, will likely receive a boost across the board.

HNA stocks rallied on Monday, with HNA Infrastructure Co. gaining as much as 19 percent and HNA Innovation Co., a provider of travel services, jumping 10 percent.

Hainan Airlines Owned by HNA, it flies 1,400 domestic and international routes to more than 110 cities worldwide
HNA Infrastructure Co. The subsidiary leases commercial and retail space at Hainan’s Meilan Airport and also generates income from ground handling services and passenger services charges
CWT International HNA last year acquired Singapore’s CWT, a logistics operator that owns millions of square feet of warehouse space globally

More Good News for EV Makers

China will control the number of vehicles in Hainan in “a scientific way,” in a bid to make the island a place with a “green lifestyle,” according to the official Xinhua News Agency. Xi’s administration is due to implement new-energy vehicle production quotas, targeting a seven-fold increase in sales and considering a wholesale ban on gas guzzlers as China tries to cut air pollution and reliance on imported oil. If Hainan becomes the pilot ground for the government’s new policies, manufacturers such as Warren Buffett-backed BYD Co., SAIC Motor Corp., BAIC Motor Corp. and Geely Automobile Holdings Ltd. stand to win.

©2018 Bloomberg L.P.

With assistance from Rachel Chang, Daniela Wei

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