Macau’s gaming sector is likely to report “almost break-even” levels of earnings before interest, taxation, depreciation and amortisation (EBITDA) for the first quarter, despite the disruption wrought by the Covid-19 pandemic, suggests banking group Morgan Stanley.
But two of the city’s six operators – Sands China Ltd and Galaxy Entertainment Group Ltd – are likely to have fared best thanks in part to rental income from their shopping malls, which are “affected less by casino closures”, said analysts Praveen Choudhary, Gareth Leung and Thomas Allen.
Morgan Stanley noted that in terms of the overall Macau casino industry sector, EBITDA break-even required “roughly” MOP330 million (US$41.3 million) per day in gross gaming revenue (GGR).
On April 1, the city’s casino regulator had reported Macau industry first-quarter GGR of MOP30.49 billion, down 60 percent year-on-year.
Morgan Stanley noted in its Sunday memo, and referring to first quarter casino-licensee earnings: “We expect Sands China to report property EBITDA of US$55 million, aided by retail rental (which is helped by a stable base rent component and does not have much fixed costs).”
The bank added Galaxy Entertainment “should post corporate EBITDA of HKD160 million” (US$20.6 million), helped by factors including its construction material division and retail business.
Morgan Stanley stated Melco Resorts and Entertainment Ltd was likely for the three months to March 31 to report in Macau “negative property EBITDA of US$7 million,” though the institution added that its casino-operation business at City of Dreams Manila could post a positive US$30 million “since the casino was closed at a much later stage in the quarter,” as part of the Philippine efforts to stem the spread in that nation of the novel coronavirus.
Morgan Stanley further noted it anticipated Macau operators Wynn Macau Ltd and MGM China Holdings Ltd would register corporate EBITDA losses of US$1 million and HKD113 million respectively.
It added that SJM Holdings Ltd was likely to have a first-quarter corporate EBITDA loss of HKD119 million despite revenue sharing at so-called satellite casinos – casino hotels with third-party ownership but using SJM Holdings’ Macau gaming licence.
The banking group expected MGM China to report negative first-quarter EBITDA “due to higher fixed costs” at MGM Cotai, “which has yet to fully ramp” up its business since its February 2018 launch.
In terms of the outlook for the second quarter – and opinion varies within the investment community regarding when and even if the recovery will start in that reporting period –Morgan Stanley noted: “We expect VIP to recover faster than mass, which could help Galaxy [Entertainment] and Wynn [Macau] more than others”.
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"One thing that is certain under the coronavirus era is that the biggest beneficiaries are the illegal operators, both bricks and mortar and online"
Partner and director overseeing government affairs at casino industry consultancy Global Market Advisors