Banking group Morgan Stanley says it expects Macau casino property earnings before interest, tax, depreciation and amortisation (EBITDA)to have fallen 6 percent collectively in the second quarter of this year compared to the first.
In a research note published on Sunday, Hong Kong-based analyst Praveen Choudhary, his colleague Jeremy An; and New York-based analyst Thomas Allen, forecast a fall in gross gaming revenue to US$9.2 billion in the second quarter – 4 percent below the aggregate recorded in the first three months of this year but still 17 percent higher than at the same time last year.
The authors say their data suggestthat second-quarter revenue from VIP players declined more than mass-market revenue, which will help boost the casinos’ margins. But rising labour costs, partly due to the payment of annual bonuses, lower win rates, and softer gross gaming revenue in the last two months of the second quarter will see EBITDA decline more than revenue.
The institution expects SJM Holdings Ltd (-4 percent) and Galaxy Entertainment Group Ltd (-3 percent) to record the smallest declines in quarter-on-quarter EBITDA, and MGM China Holdings Ltd (-13 percent) to have had the biggest fall.
Macau’s casino stocks have underperformed Hong Kong’s Hang Seng Index by 7 percentage points since the beginning of April. The research note says mainland China’s economic slowdown;the 2018 FIFA World Cup soccer tournament in Russia from mid-June to mid-July;and a lower win rate,have affected stock prices – yet the bank sees casino stocks outperforming the Hang Seng Index in the second half.
The research note says although Galaxy Entertainment stock has underperformed the Hang Seng Index in the past two months, its performance on an EBITDA basis was better than that of its peers. Sands China Ltd should have benefited from “grind mass”, but had had a weaker-than-expected summer and a slowing of its VIP business, said the report authors.
Morgan Stanley thinks Wynn Macau could report second-quarter results that are weaker than forecast, but the researchers predict the company will meet full-year estimates and increase its dividend.
The researchers suspect that MGM China will report that its EBITDA in the second quarter was 13 percent lower than in the first, even though its MGM Cotaiproperty that launched in February had seen some rampingupof its business.
Market-wide, Macau GGR in June rose by 12.5 percent in year-on-year terms, to about MOP22.49 billion, according to data from the casino regulator, the Gaming Inspection and Coordination Bureau. Many in the investment community had been expecting year-on-year expansion of about 20 percent.
May 16, 2022A cut of 5 percentage points in the tax levied on Macau gross gaming revenue (GGR “would be equivalent to a 12 to 15 percent boost” to estimated industry earnings before interest, taxation,...
”Any reduction in [Macau gaming] tax would be positive for future profits and cash flows, all else equal”
DS Kim, Amanda Cheng and Livy Lyu
Analysts at brokerage JP Morgan Securities (Asia Pacific)