Market consensus is that three of Macau’s six casino operators are likely to be in negative territory in the first quarter in terms of earnings before interest, taxation, depreciation and amortisation (EBITDA), says banking group Morgan Stanley in a Monday note.
Such performance would have been “driven by weaker than expected visitation/revenue in the second half of March,” and which had “continued in April,” stated the institution’s analysts Praveen Choudhary, Gareth Leung, and Thomas Allen.
Macau’s March casino gross gaming revenue (GGR) was the lowest since September 2020, as Covid-19 outbreaks in mainland China continue to constrain inbound travel for tourism.
Morgan Stanley said the three Macau operators likely – according to investor consensus – to report negative first-quarter EBITDA were: MGM China Holdings Ltd – which runs MGM Macau and MGM Cotai (pictured left); SJM Holdings Ltd which has a downtown flagship called Grand Lisboa, and a new Cotai resort called Grand Lisboa Palace; and Wynn Macau Ltd, operator of Wynn Macau and Wynn Palace (pictured right) on Cotai.
The institution’s own view on the size of such likely quarterly EBITDA loss is more upbeat than consensus, in the case of MGM China and Wynn Macau Ltd, but more downbeat than consensus in the case of SJM Holdings.
“Our cash flow analysis shows that companies’ cash can last for eight to 44 months, but that is based on fourth-quarter financials. March/April 2022 are much weaker, and cash drain is much higher,” said Morgan Stanley.
The banking group thinks Wynn Macau Ltd’s first-quarter EBITDA loss will be circa HKD105 million (US$13.4 million), but nonetheless better than the consensus forecast of negative HKD292 million.
Morgan Stanley believes MGM China’s quarterly EBITDA loss will be circa HKD79 million – no meaningful change from the third quarter, but better than the consensus estimate of negative HKD214 million.
The banking group sees SJM Holdings’ quarterly EBITDA loss as likely at HKD603 million, compared to consensus of negative HKD575 million. Morgan Stanley’s forecast would still be a 19 percent improvement in EBITDA performance relative to the third quarter.
Morgan Stanley said it expected Macau’s casino industry EBITDA as a whole to decline 45 percent quarter-on-quarter, to US$73 million. “We are assuming operational expenditure to remain flattish quarter-on-quarter. Thus, lower GGR could mean lower EBITDA,” said the analysts.
In a late March note, Morgan Stanley had said that the Macau casino industry was reporting “approximately US$800 million in losses and approximately US$250 million in cash flow leakage per quarter”, with aggregate net debt growing from US$5 billion at the end of 2019, to US$20 billion at the end of 2021.
