The Morgan Stanley banking group has cut by 19 percent its estimate for Macau market casino gross gaming revenue (GGR) generated this year.
The bank said its downward revision was due to “continued delay” in easing of travel rules relating to movement between Hong Kong and Macau, and between mainland China and those places.
“Despite a reduction in new Covid-19 cases in Asia, the conditions to open,” travel, “without many restrictions, are more onerous,” wrote analysts Praveen Choudhary, Gareth Leung and Thomas Allen.
The banking group now thinks Macau’s 2021 GGR will be just under MOP130.19 billion (US$16.3 billion), which would still be up 115.4 percent year-on-year on the MOP60.44 billion achieved in 2020, when disruption to inbound tourism due to the Covid-19 pandemic was at a height.
Analysts are now typically comparing 2021 data with 2019, i.e., pre-pandemic levels.
On that basis, Morgan Stanley’s latest Macau GGR estimate for 2021 would be 45 percent of the GGR achieved in 2019, versus the institution’s previous expectation the 2021 figure would be 55 percent of 2019’s.
“Investors are waiting for Macau revenue/profit to normalise, which needs three catalysts – the reinstatement” of the mainland’s electronic application system for Individual Visit Scheme (IVS) exit visas, the resumption of group visas, and “mainland-Hong Kong-Macau reopening,” in terms of ease of travel, the Morgan Stanley analysts wrote.
They suggested such things might happen in the second half this year.
Morgan Stanley also revised its estimate for 2021 Macau-market corporate earnings before interest, taxation, depreciation and amortisation (EBITDA), but the institution added it saw “likely upside with the help of higher gross domestic product and pent-up demand,” via mainland China.
For 2021, it expects market-wide, corporate EBITDA to be US$2.89 billion, down 37.0 percent on its previous estimate for the year of nearly US$4.60 billion. In 2019, Macau corporate EBITDA was just under US$9.25 billion.
“In the last five quarters, we estimate the industry lost around US$6.9 billion of cash flows,” the Morgan Stanley team noted in its Sunday memo.
The analysts also noted that since the pandemic, the Macau gaming operators had raised more than US$8.5 billion in new debt, at an average interest rate of 5 percent, meaning such fresh capital would incur over US$400 million in annualised interest expenses. Morgan Stanley said that was 5.5 percent of the sector’s 2019 free cash flow-to-equity ratio.
The Morgan Stanley team added: “…some operators such as SJM [Holdings Ltd] are using 90 percent of the proceeds,” from new debt, “to repay old debt”.
“Free cash flow-to-equity will be worse even if EBITDA normalises to 2019’s level, due to the increased interest expenses,” added the analysts.
The team’s latest estimate for 2022 Macau corporate EBITDA for the sector is US$9.28 billion, 13.6 percent lower than its previous estimate at US$10.75 billion.
