Macau EBITDA decline likely bottomed end 2Q: CS
The end of the second quarter “should have marked the bottom” of the sequential quarterly decline in Macau casino operators’ earnings before interest, taxation, depreciation and amortisation (EBITDA), said a note on Thursday from Credit Suisse AG in Hong Kong.
“With a better revenue mix from the higher margin mass-market/slot segments… and the ongoing cost savings measures, there should be a sequential improvement in third quarter EBIDTA, putting an end to six consecutive quarters’ downtrend,” wrote analysts Kenneth Fong and Isis Wong, referring latterly to cost controls reportedly instituted by Macau casinos, including reductions in advertising and marketing budgets.
A Tuesday note from Deutsche Bank Securities Inc had questioned whether Macau operators would be able to maintain margins on mass-market play as competition in that segment heats up in the face of rolling chip and junket play decline.
Credit Suisse for its part noted on Thursday that Macau’s casino gross gaming revenue (GGR) fell 4 percent quarter-on-quarter in the three months to September 30, compared to a 12 percent quarter-on-quarter contraction seen in the three months to June 30.
“We believe the subsequent pick up of revenue in late September and strong start of the Golden Week [holiday] should have dismissed concern over the junkets’ balance sheet health. Looking ahead, catalysts include easier year-on-year comparison, stabilised junket system liquidity, potentially good third quarter result and more supportive policy announcements from both the central and Macau governments,” added Mr Fong and Ms Wong.
The analysts were referring to recent comments by Li Gang, director of the Central People’s Government Liaison Office in Macau, and by senior members of the Macau government. They have been interpreted by some investment analysts as indications of enhanced political support for Macau’s casino industry.
Macau’s accumulated casino gross gaming revenue (GGR) for the first nine months of the year stands at MOP176.02 billion (US$22 billion), a fall of 36.2 percent compared to the same period in 2014.
A note on Wednesday from Cameron McKnight and Robert Shore, of Wells Fargo Securities LLC, was more bearish about Macau, stating, “the downtick in September revenues was broad-based”.
They noted: “We estimate adjusted mass market [gaming] declined 28 percent year-over-year, versus -25 percent in August; all operators saw mass revenues drop for the tenth month in a row; junket volumes declined for the 17th consecutive month; and slot revenues remain weak (down 21 percent year-over-year)…”
Mr McKnight and Mr Shore added: ‘Based on current trends, we believe October gaming revenue growth could be closer to -30 percent to -34 percent year-over -year versus our prior estimate of -27 percent to -31 percent year-over-year. Given this weakness, we see downside risk to our 2015 estimates.”
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