Banking group Morgan Stanley expects Macau casino industry earnings before interest, taxation, depreciation and amortisation (EBITDA) will have risen 140 percent in the fourth quarter, compared to the first quarter of 2020.
The Macau industry was likely to report in the upcoming earnings season “total positive corporate EBITDA of approximately US$240 million in fourth quarter 2020,” wrote analysts Praveen Choudhary, Gareth Leung and Thomas Allen, in a Tuesday memo.
“This is much better than the first quarter, when the industry made only US$100 million” in such EBITDA, they observed. But the “normal EBITDA run rate of US$2.3 billion per quarter in 2019 is still far away,” they added.
The improvement was likely to be driven by “lower operating costs as well as better revenue mix” in terms of gross gaming revenue (GGR).
“Industry daily operating expenses declined by 38 percent year-on-year in third-quarter 2020, and we expect a similar decline in fourth-quarter 2020,” said the Morgan Stanley team.
“This is because … staff were let go or asked to take voluntary leave. The majority of this cost cutting will come back as volume increases,” added the analysts.
Higher contribution from mass-market gambling was likely to have resulted in “higher margin” for the Macau operators, suggested the institution.
“We expect VIP to be 21 percent of GGR in fourth quarter 2020, compared with 42 percent in first quarter 2020.”
Morgan Stanley estimated VIP revenue declined by 83 percent year-on-year in fourth-quarter 2020, while it thought mass revenue declined by “only” 62 percent year-on-year.
The official data on the market split for the three months to December 31 is expected next week from the Macau government.
Mass-market and VIP GGR combined in fourth quarter 2020 was down 69.7 percent year-on-year, at just under MOP21.84 billion (US$2.73 billion), versus nearly MOP72.16 billion in the same quarter a year earlier, show data from the local regulator, the Gaming Inspection and Coordination Bureau.
Morgan Stanley noted the just-concluded fourth quarter was also likely to have seen “improvement” in money brought in from shop rents at resort malls, including via “turnover rent”.
The banking group associated that with improved consumer demand for shopping in Macau, since the restoration – across mainland China from late September – of the Individual Visit Scheme, the exit visa system under which independent travellers from the mainland can come to the gambling hub.
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VIP share of Macau's gross gaming revenue in the third quarter of 2021