The Morgan Stanley banking group has cut by 30 percent its estimate for Macau market casino gross gaming revenue (GGR) in 2022, to US$15 billion. The institution cited a “choppy recovery” in the market, even as some “overhangs” related with travel restrictions and regulations are expected to be resolved in the first half of 2022.
The Morgan Stanley team said also it had lowered its GGR estimate for 2023 by 20 percent, to US$26 billion. On that basis, casino GGR in 2022 and 2023 would be at, respectively, 42 percent and 70 percent of pre-pandemic levels in 2019, it forecast.
“The lower 2022 GGR estimate is to reflect China’s tightened crackdown on illegal capital outflows, as well as potentially slower travel recovery amidst the Covid-zero policy and new Covid variant,” said analysts Praveen Choudhary, Gareth Leung and Thomas Allen in a Monday note.
They added: “For 2023, the lower GGR is due to lower VIP revenue at MOP16 billion [US$1.99 billion] or 14 percent of 2019 from 54 percent of 2019’s level previously.”
The institution’s corporate earnings before interest, taxation, depreciation and amortisation (EBITDA) estimates for the Macau casino industry for 2022 and 2023 are 40 percent and 8 percent lower, at US$3.81 billion and US$8.31 billion, respectively. “We expect 2023 EBITDA at only 90 percent of 2019’s level,” said the analysts.
The investment bank said additionally that it retained its “attractive view” on the Macau casino industry for a number of reasons, including further clarity regarding the licensing issue.
The city’s existing six gaming concessions are due to expire in June 2022, unless the authorities grant a form of limited extension as permitted under current Macau gaming law. Such extension can be in increments, up to a maximum of five years from the original 20-year term.
The Morgan Stanley team said it expected three events to be resolved in the “next six months”: the publication of the report on the public consultation regarding the review of Macau’s gaming law; a new draft of the gaming law; and such bill being approved by the city’s Legislative Assembly.
“Each of these events will provide clarity even if we expect temporary extension of license renewals beyond June 2022,” wrote the analysts.
They added: “We believe Macau stocks could outperform the Hang Seng Index in 2022, although recovery will be choppy. The key reason is the removal of the overhangs related to licence extensions and regulation, and travel restrictions.”
The institution stated that a near term catalyst could be the easing of travel between mainland China, Hong Kong and Macau. But it warned that other developments could eventually hamper the recovery of the Macau market.
Such issues included the “further crackdown on premium mass similar to junket VIPs”; no issuance of e-visas or group visas potentially capping the number of visitors to Macau; or “punitive regulation” around licence extension such as higher taxation or more non-gaming investment “driving lower return on invested capital”.
