Macau’s casino sector is likely to post a 42-percent year-on-year decrease in earnings before interest, taxation, depreciation and amortisation (EBITDA) for the second quarter of 2015, suggests a note from UBS Securities Asia Ltd.
“We expect second quarter 2015 sector EBITDA to drop 14 percent quarter-on-quarter and 42 percent year-on-year, compared to -18 percent quarter-on-quarter/-42 percent year-on-year in the first quarter,” stated UBS analysts Anthony Wong and Angus Chan in a note on Thursday.
Casino gross gaming revenue (GGR) in Macau dropped 12 percent quarter-on-quarter in the period between April and June. Measured in year-on-year terms, GGR decreased 37 percent, official data show.
“We expect additional operating costs from new opening[s], and operating deleverage to drive a sequential contraction in sector EBITDA margins; cushioned slightly by beneficial business mix (mass contracting slower than VIP),” the UBS analysts said.
Second quarter VIP revenue in Macau dropped 16 percent quarter-on-quarter and 46 percent compared to one year earlier, according to estimates from UBS. Mass revenue decreased 8 percent quarter-on-quarter and 25 percent year-on-year, according to the same estimates.
Although Macau reported on July 1 that aggregate revenue for June fell 36.2 percent year-on-year, some official information on the trends of the different gaming segments will not be available until next week.
According to the website of Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, the second-quarter numbers for Macau’s casino industry are likely to be published on July 16. The quarterly data from the bureau is the only official measure of the split between VIP table play, mass-market table gambling and slots.
The UBS research team stated it expected investors to pay close attention to Macau casino operators’ operating costs as outlined in their second quarter and half year results. Those reports are due soon.
“We expect Sands [China Ltd] to report the smallest drop in quarter-on-quarter profits due to share gain across segments, partly buoyed by a strong quarter in direct VIP, balanced by weaker room rates,” UBS said.
Analysts Mr Wong and Mr Chan added that second quarter EBITDA for Sands China is likely to have dropped by 36 percent in year-on-year terms, with the company posting a quarter-on-quarter decrease of just 4 percent.
They added that Galaxy Entertainment Group Ltd and Melco Crown Entertainment Ltd are expected to show “the largest decline” in EBITDA for the April to June period measured on quarter-on-quarter terms.
The fall at Galaxy Entertainment – estimated at 20 percent quarter-on-quarter and 47 percent year-on-year – is related to “additional operational expenses” on the opening of the second phase of casino resort Galaxy Macau and neighbouring sister property Broadway at Galaxy Macau. At Melco Crown, the decrease – forecast to be of 22 percent in quarter-on-quarter terms and 39 percent year-on-year – should have been caused by lower VIP hold, the UBS report stated.
Second quarter EBITDA at MGM China Holdings Ltd was estimated to have contracted by 15 percent quarter-on-quarter and 39 percent year-on-year. At Wynn Macau Ltd, the declines should have been of 18 percent and 44 percent, respectively.
According to the UBS report, SJM Holdings Ltd is expected to report the largest second-quarter EBITDA slippage measured in year-on-year terms, at 56 percent (close to 20 percent quarter-on-quarter).
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”As the Macau gaming revenue structure is now leaning heavily towards the mass business … once the border fully reopens, the recovery from mass should drive the sector to bounce more swiftly”
Vitaly Umansky, Louis Li and Shirley Yang
Analysts at Sanford C. Bernstein