Macau casino operators might be able to maintain operating costs at 10 percent below pre-pandemic levels even after full recovery, having learned to run leaner during the three years of the crisis, says a Tuesday report from JP Morgan Securities (Asia Pacific) Ltd.
That should “help boost profitability,” wrote analysts DS Kim and Mufan Shi.
A 10-percent operating-costs saving relative to 2019 levels “may not seem huge on the surface, but this is actually very meaningful… if we consider the industry’s capacity” should be “20-percent plus higher in 2024 versus 2019, based on the number of casino hotel rooms” in the market, said the institution.
The analysts stated: “In addition to an obvious mix shift to mass [play] that generates approximately four times higher EBITDA [earnings before interest, taxation, depreciation and amortisation] margin, i.e., 35-percent to 40-percent, than VIP, i.e., 7-percent to 10-percent, we flag operating expenses savings of the past three years should also help boost profitability as we come out of the downturn.”
“This gives us confidence to forecast EBITDA to recover to about 100 percent to 110 percent in 2024/2025 versus 2019, without any profit contribution from VIP,” they added.
The brokerage flagged it expected a circa 5-percent increase in the number of hotel rooms this year in the Macau casino sector. The net increases are said to be for Galaxy Entertainment Group Ltd, with circa 450 more rooms; Melco Resorts and Entertainment Ltd, with 650 extra rooms; and SJM Holdings Ltd, with 319 more rooms.
Galaxy Entertainment has said it plans to open “progressively” Phase 3 of its Galaxy Macau resort on Cotai – which is to include a Raffles-branded hotel – in the second quarter of this year.
“Galaxy Macau Phase 3 opening from next month, and Phase 4 – circa 2025 – which will be Macau’s last mega-casino projects at least until 2032 – will not only double its current footprint, but should also make ‘Galaxy cluster’ a more appealing holistic destination, akin to the experience from the current Cotai Strip that’s dominated by Sands [China Ltd],” wrote the JP Morgan analysts. The mention of the year 2032 was a reference to the end of the current 10-year gaming concessions.
The institution says that by 2026, Galaxy Entertainment’s room tally should rise to 7,429, i.e., a level 67.7 percent higher than the 4,429 it had in 2019.
The analysts added: “We think it’s not impossible to see Galaxy [Entertainment] nearly doubling its profits as Phase[s] 3/4 fully ramps up, say, by 2027 to 2028.”
Melco Entertainment is to launch the “first stage” of Phase 2 of its majority-owned Studio City resort on Cotai – in likelihood including one new hotel tower – in the second quarter of this year.
Several brokerages recently reported – citing SJM Holdings’ management – that the latter group would open in the second quarter further rooms at its Grand Lisboa Palace resort.
