The whole of third-quarter Macau casino gross gaming revenue (GGR) is at risk due to the ongoing community outbreak of Covid-19, says a Monday note from a brokerage, adding that it was “worth revisiting” its liquidity analysis for the city’s six operators “under a zero-revenue environment”.
JP Morgan Securities (Asia Pacific) Ltd was commenting on Saturday’s announcement that Macau’s casinos were to close for seven days from the start of Monday (July 11) as part of efforts to contain Covid-19 transmission locally.
Analysts DS Kim and Livy Lyu wrote: “Frankly speaking, there was virtually no business for casinos over the past three weeks anyway, so the incremental impact to the market’s expectations – or lack thereof – will be marginal, in our view.”
They added: “We would probably need to write off July and likely August as well from the [GGR forecast] models, and it is worth revisiting our liquidity analysis under a zero-revenue environment.”
Macau had had a total of 1,467 confirmed Covid-19 cases as of midnight on Saturday in the current local outbreak, first announced on June 19. A total of 93 new infections was detected on Saturday. The alert has coincided with inbound travel to Macau being drastically reduced, according to data from the city’s Public Security Police.
JP Morgan said it thought casino operators SJM Holdings Ltd and Sands China Ltd currently had the “shortest liquidity runway, of nine months until March 2023”.
Wynn Macau Ltd, MGM China Holdings Ltd and Melco Resorts and Entertainment Ltd currently had – according to the brokerage’s estimates – “one-and-a-half to two years of liquidity,” which was enough to “weather through zero revenues until mid-2024” if necessary.
JP Morgan added that Galaxy Entertainment Group Ltd was “an outlier”, with “five years of liquidity”.
The brokerage further noted that “adding to the complexity” of the situation, was that Macau operators would have to “set aside MOP5 billion” – about US$620 million – as a liquidity reserve as part of future concession arrangements.
But the institution said it was “not too worried about the liquidity situation overall” for the Macau operators.
The analysts stated: “We expect controlling shareholders to provide funding via shareholder loans, similar to the case of Wynn [Resorts Ltd for Wynn Macau Ltd] last month.”
JP Morgan added that Sands China in particular had “a cash-rich parent,” in Las Vegas Sands Corp, which had recently announced US$6 billion-plus in proceeds from asset sales in Las Vegas, Nevada in the United States. SJM Holding’s controlling shareholder, Sociedade de Turismo e Diversões de Macau SA (STDM), had “also discussed a plan to provide up to a HKD5-billion [US$637-million loan”.
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Aggregate number of visitors to Macau during the first six days of the Chinese New Year holiday break