In the fourth quarter, most Macau casino operators could potentially get back to positive earnings before interest, taxation, depreciation and amortisation (EBITDA) thanks to the announced return of electronically-issued exit visas for Chinese-mainland residents, including Individual Visit Scheme (IVS) permits, as well as group tours from the mainland, said a Sunday note from JP Morgan Securities (Asia Pacific) Ltd.
Analyst DS Kim described the measures outlined on Saturday by Macau’s Chief Executive Ho Iat Seng as “great news” and a “path to normalcy”. Mr Ho had said there was hope that daily visitor volume from the mainland could rise to 40,000 after the easing, which might start either in late October or early November, he added.
August’s 331,397 tally of visitors – or an average of 10,690 arrivals per day – was down 19.0 percent judged year-on-year.
“We model the industry’s mass GGR [gross gaming revenue] to recover to 25 percent to 30 percent of pre-Covid levels in fourth quarter and to ramp up sequentially through 2023,” wrote JP Morgan’s Mr Kim.
“Most operators can turn EBITDA positive when mass GGR hits around 30 percent to 35 percent of pre-Covid levels – except SJM [Holdings Ltd] which needs meaningfully higher levels given new casino operating expenses – indicating some companies can start to print positive profits from the fourth quarter,” the analyst added.
Praveen Choudhary and Gareth Leung of Morgan Stanley Asia Ltd also welcomed Saturday’s news. In July the institution had forecast for 2022 an aggregate EBITDA loss equal to US$800 million for the Macau operators unless there were improvements in the Macau casino market’s outlook.
“We believe gradual border opening has begun, and expect this to continue throughout 2023,” stated the analysts in their Sunday commentary.
“Although 2023 may not match pre-Covid revenues or profits, we expect 2024 to surpass 2019 mass revenue and, thus, profit,” they added.
Morgan Stanley observed that most residents of mainland China had been able to apply to travel – without the need for quarantine – to Macau since the autumn of 2020.
But the institution’s analysts observed: “Even the best quarter – second-quarter 2021 – during Covid” had seen daily mainland visitor volume of “just 22,000,” which they said was about 29 percent of the pre-pandemic business in second-quarter 2019.
In second-quarter 2021, mainlanders entering Macau via IVS permits had been only circa 8,400 of the daily total, although daily mass-market revenue had been MOP207 million (US$25.6 million), about 44 percent of second quarter 2019, said Morgan Stanley.
JP Morgan noted in its Sunday memo: “The most common pushback we heard was the lack of eVisa: currently the Macau visa can only be processed in-person over the counter, which requires pre-appointment and approximately seven days of approval period, compared to eVisa’s instant approval via automated kiosks from walk-in” applicants.
Mr Kim added: “We believe the resumption of eVisa and group tours should alleviate friction for a Macau trip, as well as signal to many that it’s okay to visit Macau, in turn boosting demand into the year-end holidays and 2023. Finally, we feel we can talk about a return to normalcy.”
