The management of casino brand MGM is confident that the Macau market will “rebound rapidly” probably from the summer, when it expects travel restrictions in the region, that have been part of efforts to stem the further spread of Covid-19, will be relaxed. The comments were made during a Thursday conference call with analysts following the release of the MGM group’s first-quarter earnings results.
MGM Resorts International’s acting chief executive, Bill Hornbuckle, said on the call that the company believed the Macau market would “rebound rapidly” once the Individual Visit Scheme (IVS) for better-off independent travellers was restored and other travel restrictions were “loosened”. MGM Resorts is the parent company of Macau-based MGM China Holdings Ltd. The Macau unit runs MGM Macau (pictured) on the city’s peninsula and MGM Cotai in the Cotai casino district.
The executive singled out Guangdong – an important feeder market for Macau’s casino industry – as a reason for optimism, saying that the number of cases in that Chinese province was now “significantly down”. “We feel better about what’s happening and we think there is some opportunity there in early summer,” added Mr Hornbuckle.
According to the group’s acting CEO, MGM China’s properties were currently incurring cash operating expenses of approximately US$1.5 million per day, “which is in excess of the amount being earned obviously by those properties”.
“We are hopeful that early this summer – given all the indicators and things we see in China – that [the Macau] market will begin to open up,” stated the executive.
Brokerage Sanford C. Bernstein and Co LLC said in a report earlier this week that Guangdong and Fujian, two Chinese provinces that combined supply in normal trading times possibly a quarter-plus of Macau’s gross gaming revenue (GGR), appear to be recovering fastest from Covid-19 lockdown, a factor which could eventually benefit Macau’s gaming industry.
Casinos in Macau are currently open – following a 15-day suspension in February – but since then the number of visitors to the city has declined sharply. As part of efforts to contain the spread of the coronavirus pandemic, a number of travel restrictions has been put in place in Macau and neighbouring regions, including a mandatory 14-day quarantine for mainland Chinese that return to Guangdong.
Macau has not recorded any new case of Covid-19 infection for more than 20 days, and in Hong Kong the number of new daily cases has been down to single digits. The Hong Kong authorities nonetheless extend the city’s quarantine measures until June 7.
Grant Bowie, chief executive of MGM China, said also on the investors’ call that the group already expected the volumes of traffic to Macau to be “significantly restricted”.
“We see that as actually somewhat of a positive, because … we think that the premium market will come back first. That’s obviously where we have that strength and that’s what we’re looking to,” said Mr Bowie.
The executive said the MGM management was expecting the announcement of some adjustments to travel restrictions in mainland China. “We’re very positive. We’re very comfortable that we’re trying to manage as best we can, but most importantly, from our discussions with customers, the demand is there, the opportunity for them to travel is the only thing they’re looking for,” stated Mr Bowie, adding that he expected to “see some opportunities coming up in May”.
The MGM China CEO said however that loosening of travel restrictions would happen in a gradual manner. “The first will be the removal of the return-to-China quarantining and then the ultimate objective that we see coming out in the next weeks and months is the releasing of the IVS system,” said Mr Bowie. “And that’s really the critical point for us,” he added.
Macau’s Chief Executive Ho Iat Seng said last week that once Covid-19 was deemed under control, the city would ask mainland China to restart the IVS programme and expand it to cover new feeder cities there.
It had already been announced last week that MGM China’s first-quarter net revenues were just under US$271.9 million, down 63 percent from the prior-year quarter. The Macau unit reported a US$22.0-million quarterly loss in adjusted earnings before interest, taxation, depreciation, amortisation, and restructuring or rent costs (EBITDAR), compared to a positive US$192.8 million in the prior-year period.
MGM Resorts recorded consolidated net revenue of US$2.3 billion, a 29 percent decrease from the prior-year quarter. Consolidated adjusted EBITDAR decreased 61 percent year-on-year, to US$295 million in the first quarter 2020.
The group has reduced its expected 2020 domestic capital expenditures by at least 50 percent or approximately US$200 million, according to management. Starting from the second quarter, MGM Resorts said it would reduce its dividend by 98 percent, to US$0.0025.
On Thursday’s call, the group’s acting CEO said MGM Resorts remained committed to developing a casino resort in Osaka, Japan, if it eventually were awarded a licence there.
Mr Hornbuckle said the group expected the selection process to be delayed as Japan is also being negatively affected by Covid-19, and the national government has declared a state of emergency across the country.
The consortium consisting of MGM Resorts and Japanese financial services group Orix Corp was the only qualified applicant for Osaka’s request-for-proposal (RFP) phase. The Osaka authorities have said that the submission deadline of the RFP proposal was put back to July, but that it could be postponed again.
“I think what may happen is that the whole process gets pushed closer to the end of the year, which I think is appropriate and fine by us … I think it will get delayed and we’re ready if it does not,” said on Thursday Mr Hornbuckle.
He added: “Japan represents without a doubt, the chance to move the needle. We’re talking about something that would generate EBITDA in the 20-odd percent range to boost our company and put Asia at roughly a 50-percent EBITDA percentage in terms of our total EBITDA.”
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Oct 15, 2021
Oct 15, 2021
"The Macau recovery continues to be disrupted by false starts, while the lack of [Chinese] public holidays for rest of the year should cap the pace of the rebound”
Andrew Lee and David Katz
Analysts at brokerage Jefferies LLC