Most of Macau’s casino operators are likely to generate positive free cash flow in the first quarter, given the robust recovery level of mass-market gross gaming revenue (GGR) in January, relative to pre-pandemic trading in 2019, says a Wednesday note from JP Morgan Securities (Asia Pacific) Ltd.
This would be “an important milestone” for the Macau industry, if confirmed in the first-quarter results of the operators, wrote analyst DS Kim.
He added such a development would be “two to three quarters earlier than what the market had expected/modelled and thus very positive fundamentally”.
JP Morgan said possibly the only exception to that trend among Macau’s six operators would be SJM Holdings Ltd, due to its “operating expenses burden from Grand Lisboa Palace,” the firm’s Cotai resort that opened in July 2021, in the middle of the tourism slump linked to the Covid-19 pandemic crisis.
Analysts at Morgan Stanley Asia Ltd mentioned in a Wednesday memo they expected Macau’s February GGR to be circa “MOP11.2 billion” (US$1.39 billion), which with three fewer days in the month relative to January, would in likelihood be a higher daily run rate than January, i.e., “MOP400 million per day”.
JP Morgan’s Mr Kim discussed the specifics of Macau’s January GGR, amid a lifting that month of most of mainland China and Macau’s Covid-19 related travel restrictions, and the mainland’s seven-day holiday for Chinese New Year.
He observed that – based on the institution’s research – “the mass GGR recovery was twice” percentage-wise “the lunar new year visitor recovery” rate.
John DeCree, an analyst at CBRE Securities LLC stated in a Wednesday note.“Travel restrictions weren’t lifted until January 8, suggesting the daily [GGR] run rate is tracking even higher than implied by the total monthly results.”
Macau recorded 451,047 visitor arrivals during the seven day Chinese New Year holiday, up 297.0 percent year-on-year, according to official data. China’s State Council had designated the 2023 holiday period for mainland residents as January 21 to January 27.
JP Morgan’s Mr Kim observed: “Even the sceptics would admit that such a recovery was almost ‘unthinkable’ until a few weeks ago and the print was undoubtedly a clean beat” of market expectations.
The analyst added that January’s MOP11.58 billion GGR was equal to about MOP374 million per day, and a “solid beat” versus sell-side analysts’ consensus of MOP8 billion to MOP9 billion for the full month, as compiled by Bloomberg.
January’s GGR result was “despite the demise of junket VIPs, implying mass GGR probably recovered to 60 percent to 70 percent of pre-Covid levels for the full-month,” versus MOP500 million a day in the first two months of 2019, wrote the analyst. The two-month comparison relative to 2019 was “to smooth out the calendar shift in the lunar new year,” he stated.
“The recovery in mass GGR was likely faster during the lunar new year holidays, at about 80 percent of 2019 lunar new year,” added Mr Kim.
CBRE’s Mr DeCree wrote in his memo: “Given the absence of junkets and VIP play in the market, it is likely that the higher-margin mass market segment has recovered significantly beyond the total GGR recovery of 52 percent, perhaps in the 70 percent range.”
(Updated 9.22am, Feb 2)
