Macau casino operators are likely collectively to report the first year-on-year growth in quarterly earnings seen in two years.
The third-quarter expansion in industry earnings before interest, taxation, amortisation and depreciation (EBITDA) – possibly 5 percent year-on-year, and 7 percent quarter-on-quarter – is expected “despite two mega casino openings and rise in operating costs, including staff,” said a Friday note from banking group Morgan Stanley.
“Industry EBITDA could record its first positive growth (+5 percent year-on-year) in eight quarters,” said the institution.
Macau casino gross gaming revenue (GGR) grew by 1.2 percent year-on-year to MOP55.0 billion (US$6.9 billion) in the three months to September 30, the Gaming Inspection and Coordination Bureau reported on October 1. It represented the best quarterly performance the Macau market has seen since the second quarter of 2014.
Morgan Stanley said that market-wide in the three months to September 30, “company EBITDA could grow to US$1.57 billion… due to cost cutting, seasonality and higher rental income partially offset by increased operating expenses from the opening of the Parisian [Macao] and Wynn Palace.”
That was a reference to two new Cotai properties that opened on September 13 and on August 22 respectively, and that are promoted respectively by Sands China Ltd and Wynn Macau Ltd.
Morgan Stanley forecast that the Parisian Macao generated US$14 million in EBITDA for the 18 days of the third quarter the property was operating; and that Wynn Palace generated US$13 million for its 40 days of third-quarter operations.
“These estimates imply first full-quarter run-rates of US$70 million for Parisian [Macao] and US$29 million for [Wynn] Palace,” noted the bank.
Morgan Stanley expects Sands China to record a 7 percent quarter-on-quarter increase in property EBITDA, “driven by organic EBITDA growth of 4 percent” and the opening of Parisian Macao.
It thinks Wynn Macau Ltd EBITDA growth “may underperform peers” and decline 1 percent quarter-on-quarter.
For Galaxy Entertainment Group Ltd, Morgan Stanley expects company EBITDA to increase 11 percent quarter-on-quarter to nearly HKD2.52 billion (US$324.8 million), driven by all gaming segments at Galaxy Macau, and “ramping of Galaxy Macau database and foot traffic in the shopping mall”.
The bank said Melco Crown Entertainment Ltd could report an 11 percent increase quarter-on-quarter in property EBITDA growth, reflecting in part “strong EBITDA ramp of Studio City by 55 percent quarter-on-quarter to US$38 million, as [a] marketing campaign that started in second quarter 2016 drove around 30 percent quarter-on-quarter increase in mass table yield”.
For SJM Holdings Ltd, Morgan Stanley estimates company third-quarter EBITDA will increase 3 percent quarter-on-quarter to HKD817 million, “driven more by VIP than mass”.
The bank believes MGM China Holdings Ltd could report 5 percent quarter-on-quarter EBITDA growth, driven by 7 percent quarter-on-quarter GGR growth, “despite reversal of doubtful debt of US$7 million that benefited second quarter 2016 (6 percent of 2Q EBITDA) and [the] shutdown of Tak Chun VIP club (15 tables) in August (less than 5 percent of total volume).”
