Banking group Morgan Stanley expects sequential declines in Macau casino operator third-quarter earnings before interest, taxation, depreciation and amortisation (EBITDA), “due to Covid[-19] outbreaks in August and late September,” in Macau.
The quarter was likely to yield “negative industry corporate EBITDA,” said analysts Praveen Choudhary, Gareth Leung and Thomas Allen in a Friday memo.
The institution expects third-quarter industry negative EBITDA to aggregate to minus US$23 million, i.e., an EBITDA level down 108 percent quarter-quarter.
This was on the basis that “industry mass revenue was at just 31 percent of the 2019 level,” and it would need to be at circa 35 percent of 2019’s performance in order to achieve EBITDA break-even.
“Gaming EBITDA was negative, and most of the EBITDA likely came from the more resilient retail rental segments,” said the Morgan Stanley analysts, referring to the shopping malls in many of Macau’s large-scale casino resorts.
Morgan Stanley said for the whole of calendar year 2021, it now expected Macau industry EBITDA estimates “to decline another 40 percent to 50 percent as consensus does not yet appear to reflect recent Covid[-19] outbreaks in August and late September, which negatively affected October Golden Week.”
The latter was a reference to a holiday period in China encompassing China’s National Day on October 1. This year, the break ran from October 1 to October 7, but coincided with tightened travel conditions due to new Covid-19 cases confirmed either just before or during the holiday.
The Morgan Stanley note stated that although the local government’s data on the third-quarter gross gaming revenue (GGR) split between mass play and VIP play would only be published in mid-October, “we think mass revenue may have fallen by more sequentially (-27 percent quarter-on-quarter) than VIP revenue (-23 percent quarter-on-quarter) as the third quarter was dragged by travel disruptions caused by Covid[-19] outbreaks.”
It added – citing Macau government data and proprietary research – that third-quarter volume of visitors to Macau from mainland China, had fallen 18 percent from the second quarter.
Mainland China is currently the only place to have a mostly quarantine-free travel bubble with Macau. Nonetheless neighbouring Zhuhai, a city that is a key gateway for mainland tourists travelling by land to Macau, currently has a 14-day quarantine for anyone returning there from Macau, or otherwise travelling from Macau, due to recent Covid-19 cases in the casino hub.
Morgan Stanley said that Macau gaming stocks lacked “positive catalysts in the near term, as further travel easing might not happen” before the 2022 Winter Olympics to be held in Beijing in February, and before Macau’s two-jab Covid-19 vaccination rate reached “more than 80 percent” of the population, from currently circa 50 percent.
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