Earnings of casino firms in the Macau market “have not bottomed” despite the current attractive valuations for the stocks of such firms.
So said banking group Morgan Stanley in a Monday report. The institution cut its forecast for 2019 year-on-year performance in Macau casino gross gaming revenue (GGR) to -3 percent, from -1 percent year-on-year previously.
For 2020, Morgan Stanley is currently anticipating 3 percent GGR expansion year-on-year, compared to its previous estimate of 8 percent growth.
“Despite our expectation of September GGR growth of 4 percent year-on-year (after two months of negative growth), we expect negative GGR growth in November/December,” wrote analysts Praveen Choudhary and Thomas Allen.
“Many macroeconomic indicators are suggesting a VIP recovery between now and December, yet VIP revenue has deteriorated further in the past three months,” they stated.
“An even bigger concern is mass revenue, which has remained robust (more than 10 percent [growth] year-on-year in the first eight months), but could turn slower in fourth-quarter 2019, to single digits,” added the analysts.
“Our concerns include slower premium mass business (commentary by various operators, including Sands China and Wynn Macau), as well as slower growth in room nights sold, owing to delays in new hotel openings.”
The institution stated it was now forecasting mass revenue growth of 10 percent this year and 7 percent in 2020, while VIP revenue was expected to decline 17 percent this year and 2 percent next year.
The institution stated: “Mass revenue is generally helped by overnight visitations, which, in turn, are helped by increase in hotel rooms, and both of these are slowing down as new capacity additions have been delayed.”
Brokerage Deutsche Bank Securities Inc said in a research note in August it expected the number of hotel rooms in the Macau market to grow by about 1 percent in 2019; by about 11 percent in 2020; and by circa 7 percent in 2021.
Morgan Stanley stated it expected the opening of the approximately 1,900-room, HKD39-billion (US$5 billion) Grand Lisboa Palace casino resort, SJM Holdings Ltd’s first foray into the Cotai market, to be delayed until January 2021. The casino firm – which will see its existing Macau gaming licence expire in June 2022 along with those of the other five operators – has most recently mentioned publicly a second-half 2020 launch for the property.
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"The Macau recovery continues to be disrupted by false starts, while the lack of [Chinese] public holidays for rest of the year should cap the pace of the rebound”
Andrew Lee and David Katz
Analysts at brokerage Jefferies LLC